The last few months have seen some movement both in terms of product availability and the terms and conditions for Spanish Mortgages.
With property prices now being reported to be rising in Spain for the first time in years activity in Spain is at its highest for long time.
After many years of Spanish Banks restricting, particularly in the nonresident market, access to finance finally a more aggressive approach to securing new borrowing is the name of the game.
Product types are repayment, there is no interest only in Spain and most loans are variable trackers.
Loan to Values changes in the Spanish Market
Loan to values for the purchase of Bank owned property has dropped in general from where we were last year when banks both offered 100% loans and 100% loans plus costs. This has now dropped unless you are Spanish Resident to between 80% to 90% although a few offers remain.
For buyers who are looking to purchase private sales loan to values up to 70% are achievable subject to the purchasers personal financial situation and two lenders now offer this level as standard. The majority of the lenders in Spain restrict this to 60%. A few Banks offer special terms for certain nationalities so where you reside can also have an impact on the maximum loan to value you can achieve.
Deutsche Bank who have been lending 50% loan to value are about to launch a 60% product but only for those earning their incomes in Euros.
Cost of both the purchase and the finance cannot be added to the loan if loan to value has been maximized so for most non residents minimum personal cash input will be 30% plus a further 12% to 13% to cover costs.
Interest rates Spain
All Banks in Spain track the 12 month Euribor. Currently as of September 2014 the Euribor is at an all time low but when contracting a loan in Spain you must consider the impact of future Euribor increases. Conversely margins above Euribor which have been at all time high are gradually being reduced.
At the very bottom end of best buy rates, which are offered for purchases over € 250k, you can gain 1.5% above the 12 month Euribor but on average you can expect to pay between 3% to 3.25%. It is anticipated with the continuing low level of the European base rate, and with the support of the European Central bank who have stated they will start to buy mortgage books, that we will continue through the year to see further reductions on margins being charged.
Fixed rates are offered from time to time but professional advice should be taken when considering this as there are pitfalls to taking a fixed rate in Spain.
Affordability assessment
Spanish Banks work on affordability ratios taking into account net incomes as declared and shown on personal tax documents. Whilst Banks will also consider profits of a Company it is the personal declared incomes that are crucial to meeting risk assessment.
Whilst each bank has a different way of calculating affordability ratios on average they will look to see that only 35% of your net incomes are taken up by way of loans and debt repayments over the month or the year.
Knowing you can afford the loan and the Bank agreeing this can be two very different things.
When Spanish Banks launch product they must agree with the Bank of Spain on what basis they will grant the loans and what documents they will require to substantiate affordability. On inspection of the files by the Bank of Spain the Bank is open to fines and further heavier audits of they cannot demonstrate they have followed the rules they laid down themselves when gaining permission to the product they are selling. For this reason Banks in Spain have little flexibility to consider applications outside their stipulated criteria.
Underwriting process
Most Spanish Banks will offer the ability to gain a financial approval but for this to be meaningful it will need to be a fully documented mortgage application. A few Banks, who should be avoided, will insist that a valuation of a specific property should be undertaken before an approval is given which means costs are incurred by the applicant before they know fiscally they meet criteria and often before any terms and conditions are agreed.
Service in general has improved over the years but an applicant can still find themselves very much at the mercy of the particular branch they finally contact as to how quickly and effectively the application is managed. The Branch may also not offer the lowest rates that their Bank can offer as they are managed on profitability and have minimum rates they can offer but are not tied to offering the standard rates if they chose not to.
Only after valuation is an offer that is anyway binding given, even if the applicant has been provided with a FIPER beforehand.
Compulsory Products
Most loans in Spain are linked in terms of rate and availability to contracting with the Banks other products. A bank account with the Bank will be required for the monthly payments as in Spain these cannot be set up by direct debit being paid from another Bank. Buildings insurance is a legal requirement and life cover is normally required by the bank and must be contracted with them. In the mortgage deed the rate offered is then linked to the products taken, if a product is cancelled then the interest rate increases according to what is stipulated in the deed. In some areas and with some banks life cover must be taken by way of a lump sum premium and is added to the loan to avoid cancellation at a later date.
Re-mortgages and equity release
Unlike many other countries there is no active market in Spain currently for re-mortgages and equity release. This means that the best possible mortgage should be sourced at outset and an independent and experienced adviser is probably best placed to source this. Whilst in the future the Spanish Banks may bring back re-mortgage product there is no guarantee this will happen and even if it does the Spanish system as it stands means moving the loan to another lender can be very costly and negate any interest rate benefit you gain.
Equity release is limited very much to home improvements so it is often bets to maximize your borrowings unless you are clear you will not require to pull out funds at a later date.
Independent Advice
Due to the buying process in Spain requiring sums are passed over before completion it is advisable to have sourced and secured lending before making an offer. At IMS we offer a no obligation and no cost full financial approval service so our clients can be sure they understand how Spanish Mortgages work, what commitment they are taking on both now and in the future and be clear on a comfortable buying budget. For further information contact us today.