Construction mortgages or self builds in Spain

Construction mortgages in Spain

Currently only a few Spanish Banks offer construction mortgages in Spain. There remains a handful of lenders that will consider applications.

Borrowing in Spain for self builds or major reforms

Limitations exist when applying for a self build mortgage in Spain. All Banks 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.

Spanish mortgages for development funding

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. Also 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.

Construction in Spain

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.

When can I apply for a self build loan in Spain

Because Banks will expect you to own the land or the property, before committing to the purchase, check what borrowings would be financially viable. An offer of lending is not possible until the land is owned outright. Planning permissions and project plans are also required. You can mitigate some of the risk by having a financial approval in place based on your individual financial status. However  you cannot remove the risk. After buying the land and paying to have the project drawn up, a loan may not be forthcoming.

Approach with caution buying land. Lender limitations apply. Loan offers are not possible before land is bought. Applications cannot be made until licences are in place.

Before buying land to build you cannot get a loan approval. Your options should however be explored early on in the process. Buying land to build should only be considered if a Spanish self build loan is a preference. In comparison to a requirement.

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. Monies are normally released in stages. Based on progress. The Bank specifies these at loan offer.

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. In comparison to a Spanish Mortgage on standard purchase of a completed home. Unlike a purchase loan some short term interest only may be an option. Up to the point the build is completed. After this loan reverts to repayment. Normal arrangement costs of a Spanish Mortgage apply. Fees are be payable at signing of the mortgage deed. For the full loan amount. Not the initial drawdown.

What are the possible limitations when considering taking a construction Mortgages in Spain 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.  If the land is classified as Rustica rather than Urban it will be unlikely any Bank will lend at any point during the build. Neither after the project is built, so you should seek expert to information on possible mortgage requirements before making any commitment to a purchase.

Apply before works commence

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. Restrictions that apply to equity release could prevent any lending being possible.

For information and future access to self build loans email us on info@imsmortgages.com with an overview of what you require.

Granting of a construction loan in Spain

A 10 year building warranty is required. Whilst not a legal necessity Spanish Banks will require that you have hold it. If at any point in the following 10 years, after finish of works known as “finda 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.