A guide to Spanish mortgages
If you plan to buy Spanish property, see what expat mortgages are available to foreigners in Spain and what you need to apply for a Spanish mortgage.
Looking at property for sale in Spain? Foreigners have no restrictions for buying property in Spain but it's important to be aware of any differences in the Spanish buying and mortgage processes before you embark on owning your own property in Spain. Here are the important things to consider before applying for a Spanish mortgage.
Should you buy property in Spain?
Since the Spanish housing market collapsed in 2008, an oversupply of residential properties has remained unsold or returned to the market due to foreclosure and prices have plummeted. Spain's economy, however, is slowly improving and property prices are showing signs of recovery of 1–2 percent. Although property values are not expected to reach pre-crisis levels until Spain's housing oversupply is absorbed, the OECD reports Spanish property is undervalued by 26 percent, making Spain a cheap place to invest.
Coupled with historically low interest rates, often monthly mortgage payments can be less than rent payments for comparable properties in Spain. Additionally, under the government's attempt to attract foreign buyers, a visa-and-property scheme was introduced (see below) and Spanish banks have produced an array of mortgage products specifically designed for foreign and expat investors.
Those planning shorter stays in Spain, however, should factor in Spain's capital gains tax of more than 20 percent, which could offset any benefits of buying in the short-term. Additionally, buyers need to factor in Spain's property transaction costs of around 15 percent of the property value. Even if property prices rise, it is still likely buyers will need a minimum of three to five years to offset property transaction costs.
However, the recent decision of Britain to leave the EU puts some uncertainty on Spain's housing market. With records showing some 15 percent of residential properties sold in Spain were purchased by foreigners in 2014 and that British by far comprised the majority of buyers, Brexit will undoubtedly have an ongoing impact on policy and prices throughout Spain.
The fall of the British pound and possibility of recession in both the UK and EU could mean that Spanish properties remain on the market longer, continuing Spain buyers’ market. Thus, although there is no restriction on foreigners buying property in Spain, this may affect your investment if you sell in the near future.
Spain's golden visa for international property buyers
As a result of stagnant domestic demand, like many of its EU peer countries, the Spanish government is eager to welcome foreign investment in its real estate market. Under certain conditions – including a minimum investment level which can be spread among several properties – investors can receive a Spanish residency permit.
The so-called 'golden visa' allows qualifying individuals to reside in Spain and travel throughout the EU, though it does not allow for work or grant access to state benefits. Golden visas require an investment of at least EUR 500,000 (without financing). Procedures for obtaining a Spanish golden visa can be obtained from a Spanish consulate in your current territory.
How much can you borrow in Spain?
If you an official resident in Spain banks typically offer larger mortgages, for example, up to 80 percent of a property's value. For non-residential borrowers, traditionally Spanish banks have been willing to lend up to 60–70 percent.
In some cases, the mortgage may be based on the bank assessor’s valuation of the property rather than the purchase price, although this depends on your Spanish mortgage product. Thus, if an assessor valued your property at EUR 125,000, you could traditionally borrow up to EUR 87,500, even if your purchase price was only EUR 100,000. However, with the current economic uncertainty, some banks are starting to lend based on the lower end of the purchase price or assessor’s valuation. It is best to check with your lending institution early regarding their specific policies.
Spanish mortgage calculators
Most Spanish mortgages are variable rates linked to the yearly Euribor (European inter-bank offered rate) plus a margin. Depending on the Spanish mortgage product you select, your marginal interest rate will be around 1.8 percent to 3 percent. In the second quarter of 2016, the yearly Euribor was at -0.33 percent, meaning variable rate loans could realise interest rates as low as 1.47 percent.
However, since negative bank rates tend to put banks in financial jeopardy, many lenders are now introducing fixed-rate mortgages. Rates for these products will vary with loan term, and currently range from 2.4 percent for 15 years to 3.25 percent for 20 years.
You can calculate Spanish mortgage payments here.
Cost of getting a Spanish mortgage
If using a Spanish mortgage lender, you should allow up to some 15 percent of the total mortgage amount for various closing costs. Thus, if your property is valued at EUR 120,000 and you can borrow 70 percent of this amount, you will need to have a EUR 36,000 down payment plus up to EUR 11,760 available for closing. Typical closing costs include the transfer and stamp taxes (explained below), the bank’s arrangement fee and opening fee, a notary fee and registry fee, and the bank assessor’s fee.
Property transfers in Spain are done through public deeds of purchase, which must be certified by a notary. The sale is not official until the notario signs using his firma protocolizada, for which fees apply. As soon as the notary certifies that all the documents are in order, the deed is ready for taxes.
Residential properties are subject to various Spanish taxes, which are all paid by the buyer at the time of closing. The transfer tax is 6–10 percent of the purchase price, depending on the property’s location. The stamp tax also varies by location and ranges between 0.75–1.5 percent of the purchase price. Sometimes the buyer pays the seller’s plusvlia tax which will vary based on the seller’s tenure in the transferred property. These are typically included in the mortgage closing costs, though they may need to be paid directly to one or more taxing authorities.
In addition, all Spanish residential property owners are legally obligated to have home insurance to cover the value of the property. Life insurance is not mandatory but many lenders require mortgagees to take out life insurance policies minimally sufficient to pay off the outstanding mortgage balance. You may also want to consider acquiring mortgage insurance to protect against default should you experience an unexpected downturn in your income. Having an active life insurance policy and a mortgage insurance policy before applying for a mortgage may even provide access to better interest rates from your lender.
Tax considerations and deductions in Spain
Non-residents of Spain are liable to pay Spanish income tax and a potential tax on Spanish assets. If you spend more than 183 days in Spain, however, you may be considered a 'resident for tax purposes'. This will expose you to pay 21 percent tax on capital gains (if you sell your property) and a 24.75 percent tax on investment income earned in Spain (from rent, for example). You may also be subject to pay wealth taxes on your worldwide assets. If your assets are greater than EUR 2,000,000, you can be required to pay a tax of up to 2.5 percent of your total worldwide asset value. Read more about taxes in Spain.
In addition to taxing rental property income, Spain also levies a property tax between 1 percent and 2 percent of the property’s value per year, depending on location. You may also be subject to a special assessment of 3 percent per year for the right to own property in Spain.
The good news, however, is that Spain allows for deducting mortgage interest, repairs, maintenance, leasing fees, and up to 3 percent depreciation of the purchase price of a home.
Before applying for a Spanish mortgage
Before applying for a Spanish mortgage, you will need a Número de Identificación de Extranjeros (NIE) which translates to 'identification number for foreigners'. This number is similar to a US Social Security number or a British National Insurance number. You cannot purchase property or execute a mortgage in Spain without an NIE.
If you’re in Spain, you can start the NIE application process at any local police station. Outside Spain, the best way to apply for an NIE is to contact your local Spanish consulate.
When applying for an NIE, you will need the following documents:
- A completed EX-15 form
- Supporting document(s) to show why you need an NIE
- Copy of your passport pages and original passport
- Two passport sized photos
- EUR 12 to pay tax form 790.
How to apply for a Spanish mortgage
Most of the larger Spanish banks offer mortgages to non-residents, most notably Banco Santander Central Hispano, Banco Bilbao Vizcaya Argentaria and CaixaBank. You can also secure a mortgage through an international bank such as Barclays, Chase or IMS, to name a few.
When applying for a mortgage for Spanish property, the best advice is to start early and shop around. While the official mortgage process can only start after a sales agreement has been reached, it is both possible and advisable to start developing your mortgage concurrent with your real estate shopping. There are many financial products available for non-residents, and the terms of any specific product may place limits on which properties you can qualify to purchase.
Whether you go through a Spanish or an international mortgage lender, you will need – at a minimum – the following items:
- NIE number
- Proof of employment or income
- A pre-agreement with the seller
- Proof that the property tax is paid to date
- Details of your current debts and mortgages
- Copies of all your existing property deeds (in Spain and elsewhere)
- Records of your current assets
- Any prenuptial agreements (if applicable).
Once you submit your completed file to the bank and the underwriters have processed everything, the bank will make you a mortgage offer. This may not be the bank’s 'best' offer, so don’t be afraid to take it to a competitor. Often the competitor will try to provide you a better offer – which you can then take to the original bank to see if they are willing to improve their original offer.
While you don’t need to specifically pay to get a mortgage offer, advice or consultation, you may need to pay for a property appraisal, local attorney or Spanish translator (one who does not work for the mortgage lender). These can help you avoid being misled or pressured by 'highly motivated' sellers who may be willing to take advantage of non-resident buyers.
Types of Spanish mortgages
Spain offers the usual lineup of mortgages, with expat-focused Spanish mortgages also being offered by international banks and Spanish banks. Many Spanish mortgages have no restrictions on purchase price or nationality, though there are products available that favour buyers from specific countries or that favour purchases of real estate in specific geographical regions.
The biggest difference between residential and non-residential loans is the maximum loan-to-value (LTV) which banks will allow. Residents can generally borrow up to 80 percent of the property’s assessed value whereas non-residents are limited to 60–70 percent LTV, depending on your Spanish mortgage type.
A particular nuance of seeking a mortgage for a Spanish property is that, subsequent to the Spanish housing market collapse of 2008, local banks have a bloated abundance of repossessed properties on their books which they are seeking to sell. In some cases banks might only be willing to provide a mortgage to foreign buyers for their own real estate listings. Thus your options for acquiring a mortgage may be closely tied to a particular property. The good news, though, is it may be possible to borrow significantly more of the property’s value – even up to 100 percent in some cases – when buying a bank's repossessed property in Spain.
Working with a Spanish realtor
Most real estate transactions in Spain are handled through local agents. Foreigners can also work with agents in their own country who have cooperative relationships with Spanish agents. While there are many qualified and licensed real estate agents in Spain with whom you can work, their activity is not regulated by law. Agent fees typically range between 5 percent and 10 percent of the selling price and are paid by the buyer. However, fees as high as 35 percent have been reported.
You can also find expat-focused and English-speaking real estate agents in Spain, particularly in the larger cities such as Madrid and Barcelona and in summer holidays destinations along the Spanish coast.
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