Sunshine Villas Mortgages & Finance

GENERAL INFORMATION

70% mortgage for EU non-residents

EU non-residents can obtain a loan for a holiday home for up to 70% of the purchase price (or valuation if lower). For Spanish tax residents the maximum mortgage is up to 80%. 

Interest rates

All lenders base their mortgage interest rates on the annual Euribor reference rate with a percentage margin added to this, for example, annual Euribor + 3%. There are some brokers who can secure mortgages with rates as low as annual Euribor + 1.35% or fixed from 2% for premium, non-resident buyers. Typically for other buyers, the rates will be a little higher than this (from Euribor + 1.9% and 2.05% fixed) but still lower than publicised rates or if you go directly to the banks. 

Conditions

  • Terms up to 30 years or age 75 if earlier
  • With or without attaching life assurance
  • Low redemption penalties 

Mortgages for those in retirement

If you are over age 60 and in receipt of a pension, you can still have a mortgage in your own name, although the same criteria relating to the maximum level of debt-to-income will apply. It is also possible to use a guarantor such as a family member to secure your borrowing, which can also have potential inheritance tax benefits. 

Interest-only

Interest-only is not currently available, apart from during the first couple of years with some construction mortgages or if a pension plan or endowment policy will be coming to an end during that time. Another option, to keep the monthly repayments down in the absence of interest-only mortgages, is opting for the longest possible term. 

Redemption Penalties

It is possible to make overpayments as and when you can or pay off the mortgage in full. The penalties are 0.5% of the amount paid off (partial or full redemption) during the first 5 years and 0.25% thereafter. As an example, for every €10,000 paid off early, the maximum redemption penalty in Spain during the first 5 years is €50. After the first 5 years this reduces to €25. 

Commercial mortgages

If you are buying a property that the banks will class as commercial premises (offices, shops, hotels, B&Bs etc.), the loans available are generally 50% of the purchase price (or valuation if lower) and other conditions can vary from those available for properties that will be for personal use only. 

Construction mortgages

If you are building your own home, applicants must own the plot of land outright before any bank will lend for the construction. The banks could pay up to 50% of the cost of the plot as the first instalment, but generally only once the works have started. It is necessary to have all paperwork ready at the start of the application process, which includes architect’s plans, building licenses and quotes from construction companies who will carry out the works. A specialist valuer will assess the value of the project as a whole and the banks will base their lending on the valuer’s assessment. Lending of between 60-70% of the cost of the entire project (including the price of the plot) is often possible. 

Spanish limited companies

Some banks will allow you to purchase through a Spanish limited company (Sociedad Limitada or SL in the abbreviated form). If the company is set up as a shell company purely for the purpose of buying the property, the bank will assess the company or individual behind the shell company in the normal way. Due to the additional work involved in assessing companies, banks are more reluctant to approve this type of operation. Generally, they will only look at such cases when the applicants or companies have strong profiles. There are tax advantages to buying through limited companies, but buyers also need to be aware that there are administrative implications, such as the need to file quarterly tax returns and possibly pay corporation tax. 

Equity-release

Currently, it is only possible to release equity from an existing property if that property is mortgage-free. The banks will allow up to 70% of the current value, but only for the purpose of buying a new property, renovating the property itself or where the property forms part of a divorce settlement.

 

MORTGAGE COSTS

Those purchasing a property in Spain for the first time are often unaware of the costs. There are the costs associated with the property itself and then those associated with a mortgage if they are not cash buyers.

It is very common in the property industry here in Spain to hear estimates of what the costs are, for example, buyers will tell us they have been told they need to allow 12-13% of the purchase price or maybe 15%. The truth is that the percentage can vary considerably depending on the price of the property, the region where the property is located, the advisers appointed (lawyers, brokers, agents, etc.) and the deal agreed with the sellers. Having said that, 14-15% is currently a good guide for buyers to use. In the example below, the total costs are exactly 13.73% of the declared price.

We have included below an example for a used property being purchased for €300,000, where the purchaser is arranging a mortgage for €180,000. The idea is to give an indication of the typical charges involved. All costs are estimated. Before taking out a mortgage you will have a breakdown tailored to your circumstances. In the meantime, the notes provided below the table should help you work out the costs for a different purchase price and/or mortgage amount.

Please refer to our glossary for further clarification on the terms used.

Costs relating to purchase of a property for €300,000 with a mortgage of €180,000

 

 

 

 

 

 

 

 

Property costs

 

Purchase tax - see note 1

                       30,000€

Notary & Land Registry fees (approx) - see note 2

                         1,500€

Lawyers fees (approx) - see note 3

                         1,500€

Total purchase costs

                       33,000€

Mortgage costs

Mortgage tax (AJD) - see note 4

                         3,600€

Notary, registry & legal fees for mortgage deed - see note 2

                         1,200€

Bank arrangement fee - see note 5

                         1,800€

Valuation fee - see note 6

                             400€

Mortgage broker fees - see note 7

                         1,495€

Total mortgage costs

                         8,495€

Total Property purchase & Mortgage costs

            41,495€

 

 

 

 

 

In the above example, the costs work out to be 13.73% of the purchase price. They can be higher than this, for example, for cheaper properties or if the mortgage is 70% of the purchase price. Some banks have minimum opening fees and lawyers and brokers also have minimum fees. Notary, registry and legal fees will not be significantly lower for cheaper properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes:

1. Property tax varies from region to region and the tax is different when buying a second-hand property compared to a new-build. For second-hand properties the tax is referred to as ITP whereas for new-builds it is called IVA (see Glossary). In our region of the Valencian Community the taxes are the same at 10% of the property price.

 

2. These fees can vary depending on the bank used for the mortgage, the notary and land registry offices used and whether the bank uses an independent conveyancer to administer the completion duties. The notary will have to prepare two deeds, one of the property and one for the mortgage and there is a separate set of fees associated with each deed.

3. Lawyers charge different amounts. Some charge a fixed fee and others a charge of 1% + IVA (VAT) and negotiate above a certain property price. Some buyers appoint conveyancers instead of lawyers. A lawyer recognised by their local College of Lawyers (Colegio de Abogados) will charge more than a conveyancer and lawyers have guidelines on what they should charge. This does not mean that they all charge the same though. The most important thing is to appoint a competent lawyer.

4. Mortgage tax is commonly known as AJD tax and varies from region to region. It can range from around 2% to 2.5% of the mortgage amount. The amount is dependent on the mortgage amount, the interest to be charged and the mortgage costs. It is a statutory tax, so the banks have to charge it.

 

5. The bank arrangement fee is a fixed percentage that the bank charges at completion. The typical amount is 1%, although some banks charge 1.5% or more depending on the circumstances.

6. The valuation fee is charged by the independent valuation company appointed by the bank. The valuation company is usually selected at random and its fees will depend on the company appointed and the property price. The valuer will invoice for his/her work after they have prepared their report.

7. The mortgage broker we work with charges an initial fee of €495 if buyers wish to proceed with a formal application. Prior to this, their advice is free of charge with no obligation to proceed. Their standard arrangement fee of 0.5% (Minimum €1,000) of the mortgage amount is payable upon approval of the mortgage. For larger mortgage amounts, depending on the amount of work involved, this fee may be negotiable. If a mortgage is declined or the amount offered is lower than in initial quotes, they guarantee to refund the fee if the buyers choose not to proceed. Full cost breakdowns will be provided upon request and they work with lawyers and banks to provide accurate breakdowns before completion.

 

 

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All estimated costs provided on this page are to give an idea on what fees and taxes are when purchasing a property in Spain. The key point is that they vary considerably and we recommend that you ask for a breakdown specific to your circumstances.

 

DOCUMENTS REQUIRED

The documents required for a mortgage application will vary from bank to bank. Most will not require all the documents listed below, however, for completeness we have included a comprehensive list of what banks could theoretically ask for.

 

For all applicants

 

  • Colour copy of passport
  • Completed application form

·         NIE number (if you already have it)

·         Full credit report

·         Proof of funds for deposit, fees and taxes

·         Up to date property title information

·         A web-link to the property

Not always required or only if appropriate

  • Details of other loans or debts in Spain
  • Bank reference letter, which confirms the length of the relationship with the bank and that the accounts are maintained satisfactorily

·         Latest annual mortgage statement for any properties you may own Utility bill (gas, electric or water) proving residence at current home address

If you are employed…

  • Copies of latest 3 months’ bank statements showing income and payment of regular commitments
  • If less than 2 years in current job, details of previous employment (dates with previous employers, job titles, incomes and roles)

·         Latest 3 months’ payslips

·         Latest 2 years’ annual tax statements showing gross and net income (P60 for UK applicants)

·         Letter from your employer confirming the date you joined the company, your position (job title), your income and whether you are on a permanent or temporary contract

If you are self-employed…

  • Copies of latest 6 months’ personal bank statements
  • Letter from chartered accountant confirming net profit after tax in the last 3 tax years
  • Copies of latest 6 months’ personal bank statements
  • Copies of latest 6 months’ business bank statements
  • Proof of all pension income received in the last 2 tax years (P60s for UK applicants)
  • Copies of last 6 months’ bank statements showing income and payment of regular commitments
  • Current tenancy agreement(s)
  • Latest tax declaration confirming rental income declared to the tax authorities

·         Personal tax returns for the last 2 tax years

·         Copies of latest 3 sets of audited sole trader accounts (if appropriate)

Self-employed company directors…

·         Personal tax returns for last 2 tax years

·         Letter from chartered accountant confirming salary, dividends and personal drawings in last 3 tax years

·         Latest 3 sets of audited accounts for company (or companies)

If you are retired…

If you are landlord…

·         Latest three sets of accounts

Once your loan application has been approved, a valuer will be need to be sent to value the property you wish to buy in Spain. There is a cost involved in this (see Setting up costs).

Contact us if you are interested in finance and one of our advisors will get in touch with you.

 

 

GLOSSARY

The purpose of this page is to provide easy-to-understand definitions of terms that are commonly used when buying a property in Spain, as well as terms relating to our charges.

Bank arrangement fee

This is the fee the bank will charge on completion for arranging the mortgage and is sometimes referred to as the Bank Opening Fee. The standard fee is 1% of the mortgage amount. Some banks charge 1.5% or even more depending on the complexity of the case or client profile. Some banks have minimum arrangement fees, which are applied when the mortgage amount is below a certain level.

Completion

This is when the purchase and mortgage deeds are signed in front of a notary and the buyer becomes the legal owner of the property.

Escritura de compraventa

This is the deed that legalises the purchase and is signed for or on behalf of both the buyer and seller and then notarised by a public notary. The buyer obtains a first copy of the deed once all the taxes have been paid and the details have been inscribed in the land registry.

Euribor (European Inter-Bank offered rate)

All variable rate mortgages in Spain are now based on the anual Euribor, commonly referred to as ‘the Euribor’.

Guarantor

When a mortgage applicant does not have sufficient income to satisfy a bank’s lending criteria they may include a guarantor or guarantors on their mortgage application. The guarantor is typically a close family member and they agree to guarantee the mortgage in the event that the main applicant is not able to keep up the repayments. A guarantor might be a son or daughter whose parent is close to the maximum permitted age for the mortgage or it could be a parent where the son or daughter is on a low income. The guarantor is assessed in the same way as any other applicant.

Land register

This is where the Land Registry of Spain keeps detailed data on all properties. It contains the unique property identifier, the names of the owners and their identity numbers, and the details of the property itself.

Loan-to-value (LTV)

This is the commonly used term to describe the ratio (expressed as a percentage) of the mortgage amount to the purchase price, or valuation if lower.

 

Mortgage broker fee

Fee you pay to a mortgage broker and for arranging a mortgage. The standard amount is 0.5% - 1% of the mortgage amount (minimum €1,000) which is payable on completion. For larger mortgage amounts, depending on the work involved, this fee may be negotiable.

 

Mortgage tax (AJD – Actos Jurídicos Documentados)

This tax is based on the mortgage amount (not the property price) hence we refer to it as ‘mortgage tax’. The amount itself varies from around 2% to 2.5% depending on the region.

 

NIE Number (Número de Identidad de Extranjero)

This is an identity number for foreigners who register with the authorities in Spain and applicants will receive an official document with their name and number. This number must be presented for various official transactions and it is essential to have an NIE number if you wish to buy a property in Spain. Applying for the number is done via an office of the national police. We can help with this if you wish.

Notary

The notary is a professional person within the Spanish law system and their main function is to certify Spanish documents ensuring that private agreements fulfil certain legal criteria. The Spanish notary is involved in legalising agreements and contracts and uses an official stamp and signature to endorse them.

 

Nota simple

This is a legal document, updated daily, containing the property registration details. From this document a bank and/or valuer can confirm who is the official owner of the property, what is registered in terms of the building, what classification the property is (urban or rustic) and whether there are any charges on the property, for example, if there is a mortgage. It is a very important document for lenders, as they will use it to decide on the suitability of a property for mortgage lending.

Power of attorney (Poder)

The purchaser of a property may not be able to be in Spain for completion, or in fact to open a bank account or perform other official tasks. If so, they can appoint a lawyer or someone else to act on their behalf. To do this, it is necessary to have a Power of Attorney (POA) document or poder as it is known in Spain. This document must be notarised and presented whenever the nominated person wishes to act on behalf of the buyer. POAs can have different levels of powers, for example, some allow the nominated person to open bank accounts or carry out other financial transactions and others not.

Private purchase contract (Contrato privado de compraventa)

This document is usually signed after the initial reservation contract. The difference is that it includes the amount of money the buyer will pay for the property and any deposit amount, as well as the other contractual agreements between the buyer and seller. These contracts vary in their content, but it is typical that the private purchase contract will include the official deposit amount, which is very often 10% of the purchase price. It will include a definitive completion date.

Property transfer tax (ITP – Impuesto transmisiones patrimoniales)

If you buy a second-hand property in Spain, i.e. one that has legally changed hands before, there is a tax to pay that is based on the property price. This tax is known as the Impuesto Transmisiones Patrimoniales (ITP), but we often just refer to it as Property Tax and it is similar to the UK stamp duty. In the Valencian Community this tax is currently at 10%.

Redemption penalty

This is the penalty charged for early redemption of the mortgage prior to the end of the term. The penalties are the same for partial and full redemption. The penalty is expressed as a percentage of the amount paid off early. In the first 5 years, the penalty is usually 0.5% of the amount and 0.25% thereafter. These are the statutory maximums for new mortgages and nearly all banks use these as their standard redemption penalties. If, for example, you paid a lump sum of €10,000 off the mortgage in the first 5 years, the penalty would be €50. If the same amount was paid off early after the first 5 years, the penalty would only be €25.

Reservation contract (Contrato de arras)

This contract is usually signed at the point at which the buyer pays a holding deposit usually 5000-6000€  to reserve the property. It includes details of the deposit and other conditions of the reservation, which will usually include the time allowed before the buyer must sign a private purchase contract formalising the conditions of the purchase itself.

Rustic land properties

Properties in Spain are generally classified as being on urban or rustic land. Contrary to what many buyers assume, this does not mean that all properties outside villages and towns are on land classified as rustic. There are many properties in the countryside that are actually classified as being “urban”, meaning on urban land. Rustic land properties are, generally speaking, properties in rural settings that have been built on old agricultural land.

Many do not have mains water or electricity, have unpaved roads leading up to them and do not have street lighting or main sewage. Banks are less keen to offer mortgages on rustic land properties and some will not lend at all.

Rustic land properties have far stricter planning rules. In many cases, owners have added extensions and new buildings without planning permissions. Depending on the plot size, it may be that these additions can never be legalized and therefore banks are not willing to lend. Sometimes valuation companies undervalue rustic land properties.

Valuation

Before a bank will lend, they are required by law to assess the value of the property. The bank will instruct a valuation with an independent valuation company. Each bank will have a panel of such companies they work with and the company is usually selected at random from this panel. Most banks will instruct the valuation once the mortgage is approved, but there are also banks that require a valuation at the start of the application process. It is always the responsibility of the buyer to pay for this valuation.

VAT (IVA – Impuesto de valor añadido)

This tax is payable when a new property is purchased in Spain. The buyer will be the first legal owner of the new property. This is a different tax to the ‘Property Transfer Tax’ described above and a buyer would pay one or the other, never both. With a new property, the buyer pays the tax directly to the developer as part of the purchase price. The developer is then responsible for passing it on to the Government in the usual way via their regular accounting procedures. This tax is currently 10%.

 

Variable repayment mortgages

Standard repayment mortgage on which capital (plus interest) is paid back from day one. Therefore, with each monthly repayment, and as of the first month, the client is reducing the capital owed.
 
The interest rate is calculated on the Spanish base rate EURIBOR (currently less than 0%), plus a certain percentage, depending on the loan to value ratio.

Fixed-rate mortgages

With fixed-rate mortgages capital (plus interest) is paid back from day one. Therefore, with each monthly repayment, and as of the first month, the client is reducing the capital owed.

The monthly payments can be fixed up to a period of 5 years.

For further information regarding interest rates for this type of loan please contact us.

Setting-up costs

Unlike in the UK where the main costs are the arrangement and valuation fees, in Spain a mortgage has to be notarised and tax paid on the amount borrowed, so setting up a loan will work out more costly in the short term. However, taking a longer term view would mean that the low interest rate in Spain would make up for the higher initial set up costs.

  • Fixed fees
    • Arrangement fee of 1% of the amount financed
    • Mortgage Tax of approximately 1.8% of the amount financed
  • Other fees which vary according to amount borrowed but for purposes of this information we have used a loan of 150,000 Euros
    • Notary fees (approximately €860)
    • Land Registry fees (approximately €300)
    • Bank legal fees (approximately €360)
  • Valuation fee
    • Between 300 and 500€.

Redeeming the loan

Most Spanish lenders charge a redemption penalty of 0.5 and 1% if you wish to pay the loan off earlier. However, this does vary according to lender and the type of loan you take out.
 
However, please note that there will be costs involved in going to the Notary and lifting the charge as is the norm in Spain. Costs vary according to amount borrowed. Please contact us for specific costs.