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13/01/2009A good time for Spanish mortgages

A good time for Spanish mortgages Expat consultant Yolanda Solo explains why the crisis has been good for Spanish mortgages.

The current economic crisis has forced the Spanish banks to find ways to allow their clients to survive the difficult situation many of them find themselves in. The result has been the introduction of much more flexible and affordable mortgages.

Until recently it was hard to get anything other than a traditional repayment mortgage in Spain, unlike other countries who offered a much broader range of financial products.

This is particularly true for expats, who are limited to the traditional high street banks that may speak their language, or to those they are introduced to by estate agents or developers. With a little investigation however, it is actually possible to find interest-free mortgages, multi-currency mortgages and flexible mortgages amongst others.

For example, Oficina Directa offers what they call an a la carte mortgage where you only pay the interest for at least five years, then start paying off part of the capital repayment (6 percent to begin with) on an increasing scale. You can choose to pay off some of the capital if you find extra cash, or pay none if you are having a particular difficult year.

ING lets you pay off extra capital with a minimum of only EUR 1,500 as opposed to other banks who place a minimum of the equivalent of 12 months payments. This allows you to reduce the size of your mortgage without any penalties and reduce the monthly repayment or lifetime of your loan.

Multi-currency mortgages have received a lot of interest because of their low interest rates and while previously reserved for business clients, they are much more accessible to individual clients.


The benefits are that you pay for your mortgage in another currency with a lower interest rate with two of the most popular being Japanese Yen and Swiss Francs. The figures make them appealing as they could reduce your monthly mortgage payments by a third in some cases. (Note however, multi-currency mortgages are also considered very high risk mortgages because of possible exchange rate fluctuations).

How to find the best mortgages

These are just three examples of the different types of mortgages that are available – but how do you find them? Well that can be the difficult part for expats for various reasons:

·         Most of the best mortgages are offered by online banks

·         The majority of mortgage brokers tend to work with physical banks as it with them that they have commission agreements

·         Not all of the banks have a bilingual service which allows you to speak to an advisor in English

·         Expats are considered a higher risk prospect and will therefore find it harder to get a mortgage accepted in the current climate

The most important thing to remember is that your local bank is not the only option and that you should most certainly shop around before committing to any mortgage.
Mortgages in Spain are expensive, and should you decide to change your mortgage at a later date you will be subject once again to notary fees and high administration charges. It is much better to take your time to find the right mortgage, first time.

·         Visit your local banks and ask if they have an English-speaking advisor. You can often get a better rate or conditions by visiting a branch than is advertised on websites.

·         Contact several mortgage brokers – Spanish and English – and make sure that you get five different mortgage options to investigate.

·         Do your own research on the internet to compare mortgage offers – websites like www.bankimia.com have a good comparison tool which will save you a lot of time.

·         Do not be fooled by apparently low interest rate offers before confirming which additional products you have to agree to. Pensions, house insurance, life insurance and credit cards which are not taken out at the same time can increase the rate substantially. Each product you do take out will be ´rewarded´ with a decrease in the interest rate.

·         Get a printed copy of the terms offered and if they are in Spanish, make sure you have someone check them for you if you are not confident you understand everything.

Rent-to-buy option

This is another great concept to have come out of the crisis. While it is not new, it is being offered more often as homeowners get desperate to cover their mortgage payments.

A rent-to-buy option means that you ´rent´ a property with the option to buy it after an agreed period of time, with the money already paid in rent discounted from the sale price. It makes sense for the buyer who can´t get a mortgage and does not want to pay money for nothing with a standard rental contract. It also makes sense for many sellers, who have been trying to sell their properties for a long period of time with no success.
While this is by no means the norm (sellers may never have heard of rent-to-buy), this could be a bargaining tool to get that dream house you want if you are unable to get a mortgage at this present moment. At the end of the rental period, the banks will hopefully be less frightened of lending money and you will be in a better position to take out the mortgage loan. If you are working in Spain, you will also have a longer work history and proof of income to support your application.

While there are now more options available for buying a house, it just requires some investigation, as the most interesting mortgages are unlikely to be offered to you through the traditional routes.

At the time of publishing this article it is particularly challenging finding a mortgage, let alone a good mortgage deal.

Due to the financial crisis, even Spaniards who have a history of employment and a high income level are being refused mortgages. There are many people who want to buy property in Spain but simply can not get funding, even if they fulfil all the requirements.

It can be tempting to accept the first mortgage that is offered to you when you have been refused time and again, but it is crucial you take your time selecting the mortgage product that is right for you. While the wait may be frustrating, your bank balance will be much healthier for the tens of thousands of euros you could save over the life of the loan.

13 January 2009

text: Yolanda Solo / Expatica

Yolanda Solo is author of "Spain: The Expat Survival Guide" and is a consultant to expats in the Huelva area of Costa de la Luz. Yolanda helps expats with troubleshooting problems with property developers and builders and finding alternative mortgage products. As Expatica's mortgage expert, she can assist you if you have any problems. Click here to ask her a question.

 


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