Mortgages in Spain linked to purchase price
After years of selling Spanish properties and advising clients to under declare purchase prices (to avoid the full buying taxes but without informing client of capital gains tax exposure at a later date) some Spanish estate agents have done the complete reverse and are now convincing buyers and sellers to over declare purchase price.
The rationale for this is that you will reduce possible capital gains tax implications when you sell at a later date and that the higher purchase price will now help secure more mortgage funding as Spanish banks and Spanish mortgages are now linked to purchase price as well as valuation. Previously the banks in Spain only linked to valuation alone.
Whilst in principle this may all sound fine; firstly it is an offence to knowingly try to avoid tax and defraud a bank with miss-information; secondly, Spain has now very much come into line with the rest of Europe on their implementation of money laundering rules. The arrest and imprisonment of many Notaries and lawyers has focussed the minds of these legal advisers and upholders of the law so the most likely conclusion of such a transaction would be the sale would fall apart at completion.
Spanish Notary manages completion process
The reason the sale would collapse at Notary is if you declare a higher purchase price than you are paying the Notary will ask to see evidence of where the full funds are to be sourced from and evidence on day of completion of all these funds being visible and sufficient to cover purchase price and all costs. Despite an enhanced purchase price allowing in some cases where the property has had a high valuation more than normal funds to be raised on the mortgage in Spain, given maximum loan to values are now 70% a shortfall of funds will still be obvious on completion day. Either at this point the bank or the Notary will pick this up and halt completion.
Implications for a Spanish Mortgage applicant
Even if the transaction does slip through; if at a later date the bank realises it has been hoodwinked the implications could be grave for the mortgagee. Any buyer getting involved in such a transaction could leave themselves open to losing any deposits passed before completion or criminal prosecution. The risks are great and the rewards intangible.
It is difficult sometimes not to despair at the potential damage unprofessional advisers in Spain can cause. Can no one just sell a dream holiday home in beautiful country without resorting to such tactics?