Self Build lending in Spain


New construction loan is launched in Spain

One of the lenders in Spain has recently launched a new construction or self build mortgage.

As the recovery of the Spanish economy continues more and more buyers in Spain are looking at the option of buying land and building in Spain.

Because the purchase of land slowed to almost a standstill during the crisis and land prices fell more dramatically than any other type of property purchase during the crisis some good value opportunities remain out there in most areas of Spain.

This has made it more rather than less attractive for non resident buyers to consider buying a plot, designing a house and having one built to their specifications.

Lending for self builds has been risky

From a lending point of view for those potential buyers who wanted to undertake a project like this who needed a Spanish Mortgage in the past has been very risky.

This is because buyers had to commit to and pay for the not only the land but also have a fully licenced project in place before any lenders would even consider looking at a mortgage application and agreeing a loan.

With already built properties it has been possible for many years to get a fiscal approval before finding and committing to a property but for self builds you could not. This left those who needed some level of funding during construction very vulnerable and not knowing if finally a loan would be possible.

Borrowing to purchase land in Spain

Getting a loan to buy the land was almost impossible and even if this was granted there was no guarantee that then further funds would be agreed for the build. As there is no re-finance market in Spain this could leave buyers with no option to raise further funds with the lender on the land and no option to re-mortgage to another lender for the construction loan itself.

Maximum loans once you had met all the criteria for an application to even be considered was 70% of the actual construction costs and took into no account any of the costs of the land.

All in all unless you were a cash buyer or could build without a loan, if needs be, it was a very risky business.

What are the new options for borrowing

One lender is now looking to fill this gap.

They will offer up to 40% of land cost and up to 70% of the construction costs.

This means an application can be considered and agreed before committing to the land purchase. Whilst the construction part will only be guaranteed once the project and plans are available the Bank is not going to lend on the land unless you have the right fiscal circumstances for the construction loan to also be viable.

Having just a loan on the land is not a situation the Bank will want to be in so they will study and have stipulations about  the applicants financial situation plus how long they will have to break ground.

Rates will reflect their normal purchase rates which currently but subject to change means that you can anticipate best buy fixed rates for 20 years from 3% for the full term.

Other conditions may apply one being that the 10 year building warranty must be contracted.

It will be possible to get up to 1 years interest only during the construction phase.

How will the product help the market

As the product is new and at this stage no completions by the bank have been made the product is untested and may not have all the possibilities the outline of the product seems to have. Time will tell if it will help move along the self build market but at least have an option an application can be made to is move in the right direction.

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