Spanish mortgage product types

Understanding Spanish Mortgages

Spanish mortgage products tend to be less sophisticated than those found in other countries, and the terms on offer can differ significantly depending on whether you’re a non-resident or a Spanish national. Getting to grips with the range of loans available — and their limitations — before you start house-hunting will put you in a strong position to make a safe, informed offer.

Key features of Spanish mortgages:

• All mortgages offered by Spanish banks are repayment loans.
• Maximum loan to value typically 70% but up to 75%.
• Standard terms run between 20 and 25 years.
• The mortgage must be repaid by age 80 at the latest, though most lenders cap this at 75.
• Most lenders require applicants to be no older than 65 when the loan begins.
• Overpayments are permitted by law.
• Regular monthly overpayments aren’t automatically built in — but you can request permission in advance to pay more in a given month.

Early repayment charges

For variable-rate loans, early repayment penalties are capped by law at 0.25% during the first 3 years, 0.15% during years 4–5, and 0% thereafter. Most banks charge the maximum allowed on both full and partial overpayments. Fixed-rate mortgages carry higher early repayment penalties.

Non-resident mortgages are typically limited to a 20-year term, though lenders may extend this to 30 years in certain cases. Where affordability is comfortably met, a shorter term may be offered instead.

Get in touch for a detailed breakdown of how and when early repayment penalties apply to your situation.

Early Repayment Penalties on Fixed and Mixed-Rate Loans

Fixed-rate and mixed fixed/variable-rate loans can carry higher early repayment penalties during the fixed-rate period. These charges are calculated as a percentage of either the interest rate loss or the capital repaid — whichever is lower — and can reach up to 2% during the first 10 years, dropping to 1.5% thereafter.

Contact us today for a personal assessment of the options available to you.

Interest-Only Mortgages in Spain

Interest-only mortgages, once widely available in Spain, have effectively disappeared from the market. Since the banking crisis some years ago, Spanish banks have removed this option entirely, and all purchase loans are now issued on a repayment basis. Affordability is assessed on the regular repayment of both capital and interest.

Affordability ratios

Spanish banks assess affordability based on net rather than gross income. When reviewing an application, they check that your regular outgoings don’t exceed around 35% of net income.

Only income declared on personal tax returns is taken into account.

Outgoings considered include:

• Rent or existing mortgage payments, plus the new Spanish mortgage payment
• Car loans, personal loans, or other hire purchase
• School fees or child maintenance

Each bank can calculate affordability differently, and may also factor in potential future exchange rate fluctuations and interest rate changes.

We understand how each bank assesses affordability, ensuring your application goes to lenders who can approve it.

What Types of Mortgage Products Are Available in Spain?

Non-resident mortgages in Spain are generally intended for a single holiday home or main residence, meaning they’re typically limited to residential mortgages only. Buy-to-let mortgages that factor in future rental income are not available.

There are three types of Spanish mortgage products you can consider applying for.

Variable Rate Products

Variable rates are available to all non-residents who meet the bank’s criteria. While the rate fluctuates over the life of the loan, most are only reviewed every 12 months — giving you a full year of rate stability at a time. At application, the Spanish bank agrees a margin above the Euribor, and this margin stays fixed for the lifetime of the loan. At each annual review, the bank applies that month’s Euribor rate, as published by the Bank of Spain at the start of the relevant month for completions and reviews.

• Variable rate mortgages in Spain are always traditional trackers.
• Spanish Banks generally track the 12-month Euribor.
• The rate is reviewed every 6 or 12 months.
• The agreed margin above Euribor remains fixed for the lifetime of the loan.
• At review, the rate is adjusted against the Bank of Spain’s published Euribor for completions and revisions that month.
• By law, early redemption penalties are from 0.15% and only apply for a maximum period of 5 years.

Spanish lenders can differ from one another on margin, rates, linked products, and set-up costs. Headline interest rates may require you to take out a number of linked products — meaning the advertised rate is only achievable if you contract these.

Under regulation, Spanish banks are required to give you two offers if they wish to include linked products: one with linked products and one without. This lets you weigh up whether the rate discount is actually worth it for you.

Contact us today to find out if a variable rate is right for you.

Fixed Rates

In recent years, Spanish banks have expanded their range of attractive fixed-rate products within their mortgage in Spain portfolios. Fixed rates are normally set for the entire lifetime of the loan, and long-term fixes protect you from any rise in the Euribor over that period.

A fixed rate suits applicants who value payment stability. For those who don’t earn their income in euros, it also removes one of the key variables that can otherwise affect your monthly repayments.

• In recent years, the Bank of Spain has actively encouraged Spanish banks to expand fixed-rate availability.
• Most lenders now offer a good range of 10 to 20-year full-term fixes. Rates from 2.5%
• In a lending environment where remortgaging isn’t standard practice, fixed rates provide stability for the entire life of the loan.
• Early repayment penalties can be higher than on variable rate products.

The final fixed rate can’t be locked in at application stage — it’s confirmed at formal offer, as set out in the FEIN (the official Spanish offer document). Most lenders will honour the rate given at financial approval, provided completion takes place while that approval is still valid — approvals generally last for 3 months.

Fixed-rate Spanish mortgages aren’t available to every applicant, and your currency of earnings can affect eligibility.

Want to know more about current fixed rates in Spain? Get in touch and we’ll talk you through the options, contact us today.

Mixed Rate Products

In recent years, a small number of lenders have added mixed rate products to their portfolios. These combine a shorter fixed-rate term with a move to a variable margin once the fixed period ends. Mixed rate products can help borrowers hedge against short-term rate increases during periods of volatility, while avoiding the longer-term exposure to higher redemption penalties that comes with a full fixed-rate loan — and still allowing you to benefit from any drop in the Euribor further down the line.

• Shorter-term fixes of 3 to 5 years.
• Followed by a variable tracker, normally with a lower margin than standard variable rate products.
• Mixed rate products let borrowers fix short-term during volatile periods, while still being positioned to benefit from falling interest rates in future years.
• Few lenders offer a Spanish mortgage on a mixed rate basis.
• Nationality restrictions may apply.

Mixed rate products can suit applicants who want short-term rate stability in the early years, but intend to overpay or redeem early, in the medium term — and who want to take advantage of potentially lower margins than a standard variable offers.

Because relatively few Spanish lenders offer mixed rate products, careful comparison is essential — including pricing, set-up costs, and any linked products required to access the rate.

Contact us to find out more about which products might suit you and what you could borrow.

Buy-to-Let Mortgages in Spain

Buy-to-let doesn’t exist as a distinct Spanish mortgage product type. That said, Spanish banks don’t place any restriction on an owner’s ability to rent out their property.

• The loan is never underwritten specifically as a rental-purpose loan.
• Future rental income isn’t taken into account.
• As a result, all applications are assessed purely on personal affordability. Spanish banks typically work to an average affordability ratio of 35% of net income, which must cover the new Spanish payment alongside any other existing commitments.

Commercial Mortgages

Commercial borrowing for a non-resident of Spain is very difficult to secure. Loans are always assessed against the applicant’s personal financial situation, and any future income the premises might generate is not taken into account when assessing a commercial application.

• Non-resident commercial lending is extremely difficult to secure with Spanish banks, except in very rare circumstances.
• Lenders generally only offer residential home loans, and each commercial application is assessed on a case-by-case basis.

Need a commercial loan?

Contact us to discuss your needs.