Being fully prepared financially before visiting Spain will enable you to negotiate with sellers in the knowledge you are in the strongest position to buy and have the ability to move quickly without putting at risk your deposit monies. Contact us today for a no obligation illustration for a Mortgage in Spain.
Why would I need independent advice when arranging a Mortgage in Spain.
Spanish Banks do not always have set criteria’s and rates and some allow their Branch Mangers to define rates and costs for the Spanish Mortgage within certain guidelines as long as these did not go below the minimum set by Head Office. This means that if you visit one Branch of a Spanish Bank, one Manager may offer a better deal on the mortgage in Spain than if you ended up in another branch of the same Bank. All our Spanish loans are direct from the Head Offices and are always at the lowest end of the possible rates achievable and we can gain special pricing or terms for clients of ours dependant on their status and fiscal quality.
At IMS we understand the need to provide free advice and an approval in principle service for a Spanish Mortgage. This means before you go house hunting you will know what your maximum budget is, have your finances sorted, know what cash deposits you will require and how much the entire purchase process will cost with no nasty surprises or misunderstandings at a later date.
New regulation being implemented in June 2019 which means by law the signing of the mortgage offer and registration of this at a central notary office must happen at least 10 days before completion means it is even more important that the full mortgage process is undertaken before you commit to a completion date and sign a private purchase contract and pass non refundable monies over. Starting the fiscal approval before finding a property will shorten the overall time to offer and allow you to move much more quickly and safely.
We will advise you on all your options for a Mortgage in Spain, we will negotiate based on your proved circumstances and requirements and your match to each Banks criteria and provide the best possible terms and conditions we can gain for you. We do not just work with one lender but have access to the majority of the market providers. We will explain the benefits and drawbacks of our options and the product types available in a clear and concise manner.
Loan to values for non residents applying for a mortgage in Spain
A mortgage in Spain is granted as a percentage of valuation or purchase price whichever is the lower of the two. Maximum loan to values are 70% with many lenders limiting this to 60% for non tax residents of Spain, or applicants living outside the EU. Higher loan to values may apply where a property is being bought directly from the Bank.
Term you can expect for a mortgage in Spain
Maximum terms range from between 20 to 30 years. Age restrictions do apply which can vary from Bank to Bank and range from age 60 years to age 75 years. In general where feasible from an affordability point of view Spanish Banks prefer loans are set up at no more than 20 years.
Types of loans available in Spain
Standard repayment loans are the main product in Spain. Interest only has disappeared from the market. This loss of interest only facilities has happened under pressure from the Bank of Spain.
Fixed rate loans loans are available. Now offered by nearly all Banks in Spain they have become increasingly more widely available. Fixed rate Mortgages in Spain are generally for the full term and available at competitive rates. Due to a low Euribor, which variable rates track, the fixed rates are higher than the variable rates but will provide long term stability. Most fixed rate loans have higher early redemption penalties than the variable rate products.
Buy to let mortgages, using rental income as part of the affordability assessment are not available but the Banks in Spain do not prevent you from renting out the property.
Most loans are for purchases only, a small handful of banks allow or can offer remortgages or equity release but where they are offered many restrictions apply. Re-mortgages at present are only considered for clients who have an interest only full term loan coming to an end where the capital would have to be paid up in full.
Self build loans are very limited in access and generally only cover a percentage of the actual build costs. Mortgages for the purpose of buying just land in Spain is very restricted.
How Spanish Banks assess affordability ratios for a Spanish mortgage
Spanish Banks work off affordability ratios based on net not gross income.
Only incomes shown on personal tax returns are normally taken into account.
Very few Spanish Banks will consider net profits from a company and not all Banks will consider all the full dividends taken by self employed.
Treatment of existing buy to let mortgages and rental incomes varies considerably from Bank to Bank. A few Spanish Banks will not lend to individuals with more than one investment property in the UK and calculation of the debt outgoing versus rent coming can sometimes make it difficult for buy to let landlords to meet affordability ratios for some of the Banks.
Most Banks will consider 100% of after tax net income but a few limit this to 80%, and some have minimum earning levels. On average to comply with general criteria for gaining a mortgage in Spain your monthly outgoings on loan and debt payments including the new loan will need to be less than 35% of your net income.
Affordability is the main underwriting criteria, the criteria does not relax at lower loan to values and nor is asset wealth considered by the Banks in Spain.
Interest Rates for Spanish non resident mortgages
Most loans offered in Spain were variable trackers linked to the 12 month Euribor. Each bank then offered a margin above Euribor. It is the margin above Euribor that differs between Banks along with compulsory products and bank charges. Many Banks link compulsory products to the rate offered so in order to ascertain actual competitiveness all elements of the loan and all monthly costs attached to it must be considered. Banks are obliged to offer you the option of one rate without linked products and one with. Loans are reviewed once a year against prevailing Euribor at review date. Check our best buy tables today.
First year premium rates and floor rates attached to Spanish Loans
A few Banks charge a higher first year rate than the variable rate would be, this then reverts to variable in Year 2. Some Banks previously placed a minimum rate ( floor rate ) within the mortgage deed. The floor rate was then the rate below which your overall rate will never fall immaterial of how low the Euribor itself drops. This practice has now stopped for all new mortgages in Spain except where the bank is allowed to protect themselves against a minus 12 month Euribor.
Early repayment penalties for a mortgage in Spain
By law from June 2019 early repayment penalties cannot exceed 0.25% for the first 3 years or the option to have a penalty of 0.15% for 5 years thereafter in both instances the penalty is 0%. This is for partial and full overpayment. If a fixed rate is taken then the redemption penalty maximum increases to 2% for the first 10 years and 1.5% thereafter but as a percentage of the rate loss or capital paid and the lower of the two. In general all Banks charge the maximum possible which works out for a variable loan at € 250 for every 100k repaid. Early repayment penalties are an area open to negotiation for partial overpayments. Some lenders have lower penalties than the law and some have no early payment penalties at all.
Costs of completing on a Spanish Mortgage
All Banks charge a fee known as the Bank opening fee or Bank arrangement fee. This fee is taken from the loan amount at completion. Fees for Banks range from 1% to 2% of loan amount.
Other fees associated with a loan in Spain include the valuation fee. Arrangement fees are taken from gross loan amount at completion. No fees nor any purchase costs can be added to loan if the loan to value restriction has been reached.
- Valuation fees average 0.10% of value
Spanish Land classifications and other possible loan restrictions
Banks will lend against property on Urban land. Very few banks will lend on property registered as Rustica or any other classification, and if they do it will be at lower loan to values. When applying for a loan it is best to check the Nota Simple of any potential property early on in the process to check the land status.
Very few Spanish Banks currently offer either construction loans or loans for large reforms. Where they do loan to value restrictions will apply and rates are likely to be higher.
Home buyer valuations for a Spanish Loan
Valuation levels will only account for meters built which appear on the deeds of the property and are fully registered at land registry. Any overbuild or extensions, or other such changes to the property that have not been registered will not be able to be valued for mortgage purposes. All lenders will use their appointed valuation company although under new legislation you may be able to select a valuation company as long as they a registered company under the Bank of Spain.
Standard Bank valuations are like home buyer reports and are not a structural valuation, nor does the Bank valuation indemnify the buyer against future problems. Very few valuation companies offer structural valuations with full indemnity but if you require this service we can help organize one for you.
Spanish Mortgage deeds
All loans, in the absence of a consumer credit act, are written into a legally binding deed which is signed by all parties at completion. Once signed it is not possible to change the terms within the deed without incurring some costs, and you are bound by the terms under law. Any change to the deed, beyond an agreed reduction in rate, movement to a fixed rate or extension of term, is deemed as a new deed by law and all mortgage costs apply again.
Novacions so changes that can be made without a new deed will hold a maximum cost of 0.15% first 3 years and no cost thereafter.
In Spain it is possible to take over or subrogate an existing loan held against the property. Whilst many Banks have stopped offering this facility due to terms on historic loans, being much better than terms on new loans, it should be explored to see if a loan exists against the property you are buying. If a mortgage is in place, what are the terms and what capital is outstanding, and would the current banks consider subrogation. The key benefit of subrogation used to be it avoided having to pay mortgage deed tax as this was only applicable on a new loan set up. With all Banks now picking up this cost subrogation may be more difficult to obtain.