Costs of setting up mortgages in Spain may differ from other countries
Spanish lenders used to pass on all costs for Spanish mortgages. Moreover costs of lending in Spain not Bank related. For instance those related to the legal and securitization process of a loan and property purchase. This was unusual and not allowable in other countries. However legislation has forced lenders in Spain to adhere to EU wide practices. Implemented June 2019 the new rules removed for the borrower certain costs. Firstly AJD ( mortgage deed tax). Secondly Notary and Land registry costs linked to deeds of Spanish mortgages.
What fees apply for a Spanish loan
Bank arrangement fees for Spanish mortgages
All Banks in Spain charge a one off fee for the mortgage lending. This fee, is known as a bank arrangement fee, closure fee or completion fee. The fee is only payable on the drawing down of the funds at completion of the purchase. The Bank fee is not payable at application stage and neither is it payable if you do not finally buy a property. Or take up the loan on offer. A few Banks in Spain, though it is is neither normal or necessary in Spain, will charge a small study fee for their advice.
Bank fees are charged to cover the cost to the Bank for setting up a new loan. All new loans require that monies are passed to the balance sheet to cover part of the risk, so many Banks will utilize part of the fee to ensure the first year of the loan remains profitable for them.
Bank fees generally range from 1% to 2% and are taken from the gross loan amount at completion. The Bank fee cannot be added to the loan amount if maximum loan to value has already been reached.
All bank arrangement fees are included in your TAE to allow you to consider one offering against another.
Valuation fees for a purchase with lending required, will vary slightly. Depending on how much of the valuation fee the Bank subsidises. Also if the Bank is in fact looking to make a small profit out of each valuation transaction. Generally a valuation for a property in Spain, instructed via a bank, will be cheaper than if a valuation is appointed privately.
Who instructs the valuation
It is now a requirement of Law that Banks in Spain must accept any valuation, as long as the valuation company is registered with the Bank of Spain. It is unlikely any cost benefit will be achieved from instructing directly yourself. A valuation must be specified for mortgage purposes to allow it to be used for lending requirements.
Each Spanish Bank will require a provision of funds is transferred to them for the valuation. When the valuation is back any extra cost will be charged to the clients account or any surplus monies refunded. The valuation level will be dictated finally by the value given. As a rule of thumb you can expect to pay around 0.10% of the value of the property.
Notary and Land registry fees
When buying and borrowing in Spain you will have two deeds. One deed will be the purchase deed. The other one will be the mortgage deed. Each deed attracts costs for signing at Notary and Land registry. A Notary must be used for any legal transaction in Spain. Also land registry must register deeds. Therefore these costs are not avoidable, and not specifically Bank related.
In December 2018 the Spanish Banks lost a class action where they were being challenged about passing the registration costs for the mortgage deed onto the client. The court ruled this should be a Bank cost. The new legislation passed in June 2019 ensures that this will remain the case going forward.
Who manages the registration process
Banks lending money will either manage the registration process, or appoint a third party to do so. Registration must be accurate to ensure security of loan. For this reason lenders control the process.
Notary and land registry fees for the purchase deed are based on a national scale. Within purchase and loan amount bands. There will be small but not vast differences between Notary offices. Also land registry costs and Bank. This may depend on the complexity of registration, and cost of any third party involved.
Costs of registration
Each Bank takes a provision of funds to cover the registration costs. Funds are retained from the gross loan amount. Post registration all invoices are sent to the mortgagee. Surplus funds refunded, or further funds deducted from the holders bank account. It is not possible on day of completion for the funds taken to be 100% precise.
Notary and land registry costs will equate to around 0.50% of purchase price, but these are subject to minimum and maximum fees.
Insurance costs another linked products
Some Banks take at completion an amount of funds to cover insurances. Ranging from 1 to 5 years. Interest rates may be linked to contracting the product. This will normally include buildings insurance which is payable via an annual premium.
Life cover costs are given at application. Buildings insurance costs are provided after valuation. When the rebuild figure is known.
Offers of lending outline the exact premiums for any linked products. Therefore this will be written into the deed for completion. Compulsory linked products are no longer allowed. Lenders wishing to sell other products are obliged to also offer terms and conditions without linked products. Consequently borrowers may decide which option to take.
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Mortgage deed tax
AJD tax, known as mortgage deed tax, was not a Bank cost. Instead a tax on the inception of a new loan. The cost of this tax comes from a rather complicated formula. Based on the risk of the total loan exposure.
Funds to pay the tax were deducted from the gross loan amount at completion. These taxes were passed to the regional government by the lender.
Spanish lenders now pick up tax costs. Due to a Supreme Court decision. Subsequently lenders pick up the tax payment. This is now also embedded in law on regulated loans in Spain. Non regulated lending is not covered by this rule.
Broker or advice fees
Using a broker helps gain the best advice, and efficient service levels. Also ensures access to a wide range of products. Should you elect to use a broker, like IMS, you can except to pay a broker fee. Brokers can charge upfront fees for their advice. However this should be avoided. Fees should be payable on production of a suitable financial approval. Moreover Broker fees should be clearly stated. Firstly so you know what level is being charged. Secondly when it becomes payable.
Brokers in Spain going forward will fall into two categories. Moreover they will need to stipulate which type they are. Ones who only work with one or two lenders. In comparison to those that can access the majority of the market. Different rules will apply depending on which category the broker falls into.
Total Mortgage in Spain costs
In total you can expect the costs advice, arranging and completing on a mortgage in Spain to equate to around 2% of lending. This may be a higher percentage on smaller loans due to minimum charges. Also valuations or arrangement fees that apply. But a slightly lower percentage on larger loans, due to maximum fees in some areas.
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