Construction mortgages or self builds in Spain
In the current market few Spanish Banks can offer self build, reform or construction loans. At IMS we are constantly researching the market to ensure we can offer clients access to this type of lending despite the market difficulties.
What can be borrowed in Spain for self builds or major reforms
Limitations exist when applying for a self build mortgage in Spain. All bar one Bank will expect you to own the land outright and will offer either a percentage of the construction or works costs, or in a very few instances a percentage of the final value of the property at completion.
During 2015 Spanish Banks have started to look again at development funding. Any funding will require a prime plot is owned or a right to buy is in place, pre-sales can be proved and that a well known and fiscally strong Spanish Company is being used for the construction of the development. Quality small to mid size urbanizations are the key focus. loan to values for developments will be based on a case by case basis as will terms and conditions.
What is the general loan to value, or loan to costs available for one off self builds
Spanish Banks that link the mortgage offer to the costs of works can offer up to 70% of these.
Spanish Banks that offer a loan linked to an anticipated value at completion of works limit this to be between 50% to 60% of final value.
In 2018 one of the lenders has launched a new self build product that allows for 40% of the land cost to be agreed at purchase of land and then up to 70% of constructions costs.
When can I apply for a self build loan in Spain
Because generally Banks will expect you to own the land or the property first it is a good idea, before committing to the purchase, that you check what borrowings would be financially viable. It has not been possible to get a full offer until the land is owned outright, planning permissions and project plans are granted and available up until the new product launch by one lender but even if this lender is not right for you, you can mitigate some of the risk by having a financial approval in place based on your individual financial status.
Due to limitations on lender availability and the risk associated with previously not being able to get a form approval of finance until land is bought and plans are in place self builds should be approached with caution in case finally a loan in Spain is not forthcoming.
With only one lender allowing for an approval to be agreed before committing to the purchase of the land this option should be explored very early on in the process.
How does a construction or a reform mortgage work
If you are doing a reform and the amount of funds required are a low percentage of the current value it may be possible to draw all the funds in one go. If you are undertaking a major reform or wanting to build a complete house then the money for the mortgage will be released in stages throughout the build process. The amount of stages, and when these stages are available will be agreed by the Bank at offer of the loan.
What are the costs of a construction mortgage
Because of the higher risk associated with lending to an unfinished project you can expect to pay more in interest rate than you would if you were to take a Spanish Mortgage on standard purchase of a completed home. You may be able, unlike with a purchase loan to gain some short term interest only that will cover up to the point the build is completed and then revert to repayment. Normal arrangement costs of a Spanish Mortgage apply and will be payable at signing of the mortgage deed on the full amount that will finally be borrowed not the initial drawdown.
What are the possible limitations when considering taking a Spanish Mortgage to build a property
You will not be able to borrow in Spain to buy a plot. You will always need to have sufficient of your own cash to own the plot you are purchasing or the building requiring a reform outright. If the land is classified as Rustica rather than Urban it will be unlikely any Bank will lend at any point during the build or after the project is built, so you should take expert and experienced advice on possible mortgage requirements before making any commitment to a purchase.
Can you place a Spanish Mortgage on the property after all works have been undertaken
If you intend to do a reform or self build and want to have some cash assistance to do this you should apply for the loan before the works start. Any application made at a later date will be classed as an equity release loan and the restrictions that apply to equity release could prevent any lending being possible.
For advice on self build projects email us on firstname.lastname@example.org with an overview of what you require.
Apart from project plans and licenses what else do you need to consider having in place before a Spanish Mortgage can be granted for a self build or major reform loan
Whilst not a legal necessity if either the major reform project or self build is being done purely for your own use, all Spanish Banks will require that you have applied for and have in place a 10 year building warranty. If at any point in the following 10 years, after finish of works known as “find de obra”, you need, or want to sell the property the 10 year building warranty must be available to the buyer by law. For this reason even if finally you do not take any borrowings on the Spanish project you should ensure you have a 10 year building warranty insurance in place.
We offer independent advice for all areas of Spanish insurance for more details.