Costs of setting up a loan in Spain may differ from other countries.
In general whilst in the past there were costs applicable to the mortgage process in Spain that would not be applicable for lending elsewhere under new legislation the Spanish lenders will come in line with other EU countries. Some of the costs of lending in Spain were not Bank related but were linked to the legal and securitization process of a loan and property purchase in Spain, as specified by national Law. New legislation implemented in June 2019 takes away formally the borrower paying any costs related to AJD ( mortgage deed tax) and Notary and Land registry costs linked to the mortgage deed.
What fees apply for a Spanish loan
Bank arrangement fees
All Banks in Spain charge a one off fee for the mortgage lending. This fee, 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 and take up the loan on offer. A few Banks, but this 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.
Advice should be taken as what fees a bank will charge and whether these charges are in line with others.
Valuation fees for a purchase with lending required, will vary slightly depending, on how much of the valuation fee the Bank subsidizes and 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 company is appointed privately.
Who instructs the valuation
It is now a requirement of Law that Banks in Spain must accept any valuation, however instructed, 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 as 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 and 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 in Spain and taking a loan you will have at completion, two deeds. One deed will be the purchase deed and one will be the mortgage deed. Each deed will attract costs for both the signing at Notary on day of completion, and the Land registry costs for registering them formally. A Notary must be used for any legal transaction in Spain, and land registry must register them so these costs are not avoidable and are 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
The Bank lending the money will either themselves manage the registration process, or appoint a third party to do so on their behalf. The requirement for the Bank to manage the process is because the Bank must ensure both the property purchase and the loan are correctly registered, so as to be sure the security being used as collateral for the funding and the loan itself are correctly recorded.
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, total land registry costs and Bank depending on complexity of registration and cost of any third party involved.
Costs of registration
Each Bank, as with valuation fees, will take a provision of funds to cover the registration costs but this time the funds will be retained from the gross loan amount. After registration is completed all invoices are sent to the mortgagee and any 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 any first year’s insurance policies that are tied into the rate given. This will normally include buildings insurance which is payable via an annual premium and may include other insurances like life policies.
Life cover costs are always given at application, often the Banks in Spain have no facility to provide offline quotes, and buildings insurance costs are provided after valuation and when the rebuild figure is known.
The FEIN used as the offer of lending will outline the exact premiums for any linked products and it is this that will be written into the deed for completion. Going forward under changes in regulation all lenders wishing to sell compulsory products will be obliged to offer the borrower terms and conditions without compulsory products and terms and conditions with so the client can decide which option to take.
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Mortgage deed tax
AJD tax, known as mortgage deed tax, is not a Bank cost but 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.
The funds to pay the tax up to October 2018 were deducted from the gross loan amount at completion and these taxes were passed to the regional government on your behalf by the lender.
Due to an Supreme Court decision that lenders should pick up this cost which was then overturned but finally re-instated by a Royal Decree the borrower will no longer pick up the payment of mortgage deed tax but the lender will be responsible for it. This is now also embedded in the new law on regulation of loans in Spain.
Broker or advice fees
If to gain the best advice, efficient service levels, and to have access to a range of products rather than one banks portfolio you elect to use a broker like IMS you can except to pay a broker fee. Some brokers charge upfront fees for their advice, which is unnecessary and should be avoided, but most charge on production of a suitable financial approval. Any fee agreed should been outlined before you contract the services of the broker so you know what level is being charged and when it becomes payable. In the future brokers will fall into two categories and will need to stipulate which they are. Ones who only work with one or two lenders and 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 of the advice, the 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 for valuations or arrangement fees that apply and a slightly lower percentage on larger loans due to maximum fees in some areas.
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