Application process for contracting a Spanish Mortgage

Applying for a mortgage in Spain differs from most countries in one key way: Spanish banks rarely offer fixed, off-the-shelf products. Instead, each application is individually underwritten and negotiated — so a complete, well-packaged application from the outset leads to faster approval and better terms.

We always aim to ensure your application contains everything the bank needs to make a decision on first presentation. In the long run, it’s far more beneficial to provide more information upfront rather than less, avoiding constant back-and-forth between us and the bank’s risk department.

The Legal Framework Behind Spanish Home Loans

Spain follows a different legal process to other countries when it comes to applying for a mortgage. While there are many similarities, the legal requirements reflect Spanish law, and as a non-resident buyer, you may not be familiar with them. It’s therefore best to work with an experienced broker like us before making an application for a mortgage in Spain.

• June 2019 saw EU-wide practices adopted across the board.
• These rules ensured all EU-based banks adhered to a specific set of guidelines.
• Most notably, this covers the information provided both before and at the signing of a home loan.
• That said, differences still remain between countries in terms of product conditions and securitisation.

At IMS, we offer a no-cost, no-obligation full financial approval service. To find out more, email or call us today.

Getting Financial Approval for a Spanish Mortgage

Spanish banks require documentary evidence from the applicant, covering:

• Confirmation of identity
• Financial situation — income and debts
• Source of deposit funds

Most countries require similar documentation, but Spain typically asks for more of it, and in more detail, than applicants may be used to. Only official documents are accepted; informal statements or estimates aren’t sufficient.

We ensure your application is professionally packaged to enable a swift decision and secure the best possible terms and conditions.

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How Spanish Banks Set Their Own Requirements

Each bank in Spain sets its own mortgage application requirements, agreed in line with Bank of Spain oversight. As a general rule, debt payments — including the new mortgage — shouldn’t exceed 35% of net income, though the exact affordability ratio varies from bank to bank.

• The lender must carry out due diligence on affordability
• This includes all existing debt, plus the new mortgage payment
• Ratios are based on net income, not gross

Affordability ratios vary bank to bank — IMS has in-depth knowledge of how banks assess applications, helping you avoid wasted applications to lenders whose criteria you don’t meet, and matching you to the right lenders from the start.

How Do Spanish Banks Underwrite a Mortgage Application?

Each bank in Spain follows a different internal process for underwriting a mortgage application.

Banks using scoring systems

• A few Spanish lenders use internal scoring systems for an initial viability check
• Scoring factors in the performance of the bank’s existing mortgage book in Spain — including historic high- or low-risk indicators
• An application can be affected if it falls into a high-risk category

Banks without scoring systems

• Many Spanish banks don’t use sophisticated underwriting tools
• Instead, they work to set parameters around debt-to-income ratios and maximum loan-to-value
• The individual judgement of the underwriting team can also play a role

We understand how each bank in Spain operates, including how they calculate affordability. We’ll listen carefully to your objectives, take the time to fully understand your financial situation, and place you with the lender best suited to your requirements and circumstances.

What Happens After Financial Approval?

A financial approval doesn’t require a valuation. It’s only after approval — once terms and conditions are agreed and a specific property is identified — that the applicant arranges and pays for a valuation.

• Each bank in Spain has its own panel of valuation companies.
• Current legislation allows you to instruct a valuation company of your own choosing, as long as it’s registered with the Bank of Spain.
• That said, some banks may not accept the application if you choose to use your own valuation report.
• The Bank of Spain regulates valuation companies.
• When producing a mortgage valuation, the valuer is obliged to follow a specific set of criteria.
• The valuation report checks the legal standing of the property, including:
  -That the necessary licences are in place.
  -That there are no outstanding infractions registered against the property.

These checks, however, are there to protect the bank, not the buyer. As such, a valuation should never replace the due diligence a Spanish lawyer would carry out on your behalf — though it does provide an additional layer of security.

 Obtaining a Spanish Mortgage Offer

In the past, banks in Spain only confirmed offers verbally. Without written confirmation, the terms actually signed at the notary could end up differing from what borrowers had originally expected.

• All Spanish banks are now required to provide a much higher level of transparency, under legislation introduced on 16 June 2019.
• Spanish banks are required, at offer stage, to provide borrowers with a FEIN — a personalised information sheet outlining the terms of the loan offer — and a general information sheet.
• The FEIN clearly sets out the agreed terms of the loan, which must then be reflected in the deed at completion. At signing, the notary is required to check the deed against the FEIN
• The FEIN must also show the TAE — the annual percentage rate, which factors in all costs associated with the loan

Once the FEIN is issued, Spanish law requires a mandatory 10-day cooling-off period before completion can take place — giving borrowers time to review the terms before signing at the notary.

At least one day before completion, the borrower (or their POA) must attend the Notary in person. During this visit, the loan signatory is asked a number of questions to confirm they understand the terms of the loan contract.

Completion of a Spanish Mortgage

All Spanish mortgages have their terms embedded in a legal deed. Once signed, it’s legally binding on both parties.

• The deed sets out the terms and obligations for both the lender and the mortgagee (borrower)
• A notary oversees the transaction — either the mortgagee or their representative, along with a representative from the bank, must be present
• The notary requires the person signing to either speak Spanish or bring an interpreter, as understanding exactly what you’re signing is essential
• Bank arrangement fees are payable at completion, deducted from the gross loan amount

Changes to the deed after completion may require a new deed — though a change to the interest rate or the loan term can usually be made without one.

Deeds and invoices become available once registration has taken place, with original documents relating to the transaction forwarded to the mortgage holder.

It’s wise to store all your Spanish mortgage documents safely, or leave them with your lawyer for safekeeping.

After the Mortgage Deed Is Signed

Taxes and costs are retained at completion, which may include tax obligations on behalf of the seller — deducted from the funds transferred to them.

Registering the deeds

• The paperwork is passed to the Land Registry by the bank
• Copies of the deeds are given to the client, though the original won’t be available until the Land Registry has approved it
• The Land Registry may occasionally request clarification on certain matters before registration can proceed
• To ensure the loan is properly secured, the lender retains control of the registration process
• Loan deed costs are covered by the Spanish bank, while purchase deed costs are paid by the buyer

Why extra funds are retained

• Until the Land Registry approves the transaction, the exact cost of registration remains unknown
• Most banks therefore retain a slightly higher level of funds than strictly required
  Any surplus is refunded to the borrower once all invoices have been settled

After Mortgage Registration in Spain

Your appointed lawyer should ensure all paperwork is obtained after registration and held securely. These documents are essential when you come to sell your Spanish property:

• They’re needed to ensure costs can be offset against capital gains tax
• At the point of sale, all documents must be handed over to the new buyer’s lawyer

After registration, changes can still be made to an existing Spanish mortgage deed. These are known as novations, and are limited to interest rate adjustments and changes to the loan term.

Under current legislation, it’s also possible to switch from a variable rate to a fixed rate product. The cost of switching is capped at 0.15% for the first 3 years, and 0% thereafter — though notary and land registry costs may fall to the borrower in this case. Switching is only possible if the bank in question offers a fixed rate product.

Once your Spanish mortgage completes, the ongoing relationship is directly between you and the bank. Any changes you want to make after this point — such as a novation to adjust the rate or term — must be requested by you directly with the lender.