Getting a Spanish mortgage could be your ticket to entering the desirable housing market in Spain. Here’s how to do it.
Whether you have decided to live as an expat in Spain or you want to buy a vacation home, the Spanish property market is still relatively affordable. However, before you start your real estate search, you should find out if you are eligible for a Spanish mortgage and how much you can borrow as a foreigner in Spain. Find out the answers to these and more, with sections covering:
- Mortgages in Spain
- Should you buy property in Spain?
- Who can get a mortgage in Spain?
- Types of Spanish mortgage
- Mortgages for other purposes
- Green mortgages
- Mortgage rates in Spain
- How much can you borrow?
- How to apply for a Spanish mortgage
- Mortgage costs in Spain
- Taxes and relief on Spanish mortgages
- Property insurance in Spain
- Mortgage repayments
- Refinancing a Spanish mortgage
- Useful links
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Mortgages in Spain
Recent statistics suggest that 76% of Spain’s residents own their homes. This is higher than the OECD country average of 60%. In addition, Spain is open to foreign real estate investors – you don’t need to be a resident of Spain to get a Spanish mortgage or buy property. However, your residency status will impact the amount you can borrow from a Spanish bank.
According to Spain’s Land Registry, home purchases by foreigners reached 10.8 percent in the third quarter of 2021. British, German, and French are the top foreign nationalities buying homes in Spain.
Should you buy property in Spain?
According to CaixaBank, Spain’s housing market has lower rates of overvaluation than some other countries in Europe. For homebuyers, that means your home purchase in Spain is less risky than in many other EU countries such as the Netherlands, Germany, and France. Even so, buying housing in Spain will cost you more money in 2022 than before the COVID-19 pandemic. Spanish property search engine Idealista reports that house prices increased by 4.2% in 2020-2021. In addition, housing prices vary from city to city. You will likely have to pay much more to buy property in the center of Madrid or Barcelona, for example.
Another aspect to consider is Spain’s capital gains tax (CGT). Non-residents will owe 19% CGT on the profit they make from selling property in Spain. The CGT tax for residents ranges from 19 to 26%. Consequently, buying real estate in Spain as a short-term investment could be a financial mistake.
Who can get a mortgage in Spain?
As mentioned, you don’t need to be a citizen or resident of Spain to buy property in the country. However, you will need a Número de Identificación de Extranjeros (NIE) to get a Spanish mortgage. This is simply a tax identification number for foreigners.
Although you might be able to secure a loan through a bank in your home country, you will likely need a mortgage from a Spanish bank. Your income and other debts are crucial factors in your borrowing power. Self-employed borrowers will need to show the past one to three years of earnings and a self-assessment tax return.
Getting a mortgage as a foreigner in Spain
Many Spanish mortgages have no restrictions on the purchase price or nationality. However, you will notice differences depending on if you are a legal resident of Spain or a non-resident. Spanish mortgages tend to favor residents of Spain. One example of this is the maximum loan-to-value (LTV) that banks will allow for buying property in Spain. Residents can generally borrow up to 80% of the property’s assessed value. Non-residents are limited to 50–70% LTV, depending on the mortgage.
Furthermore, while mortgage interest rates for Spain’s residents are at historic lows (around 1.5% in the third quarter of 2021), interest rates for non-resident mortgages can reach 2–2.5%. Non-resident Spanish mortgages are usually fixed-rate and have a term of no more than 20 years.
Another difference for foreigners who buy property in Spain will be the amount of time you are allowed to stay in the country. If you are a non-EU citizen and a non-resident, you will generally only be allowed to visit Spain, and the rest of the Schengen travel area, for up to 90 days per 180-day period. Due to Brexit, this rule now applies to UK citizens who are not Spanish residents.
Spain’s Golden Visa Program is a popular way for non-EU citizens to become Spanish residents by making a €500,000 real estate investment. However, you should be aware that you cannot use financing to qualify for this visa scheme.
Types of Spanish mortgage
Spanish mortgages have two main types: variable and fixed. These are also the only two that are available to non-residents. However, you will additionally find a few other mortgage products offered by some banks. Generally, residents in Spain can access loans of up to 40 years. For non-residents, the typical length of the mortgage is 15 to 20 years.
The benefits of variable interest rates include taking advantage of low rates and more Spanish mortgage options. The interest rate is adjusted with the Euro Interbank Offered Rate (Euribor), which has been in negative territory since 2015. The disadvantage is not knowing how much your monthly mortgage payments will be in the long term because interest rates can rise.
This type of mortgage is less risky since you will know exactly how much your monthly repayments are for the entire duration of the mortgage. You are also protected from future interest rate increases because the rate is fixed. This mortgage product became more popular with Spanish homebuyers in 2020 because it offers more security in uncertain markets. On the other hand, you will pay more to borrow the money when interest rates are low.
As the name suggests, this type of mortgage uses both a fixed and a variable rate. Most of these mortgages fix the rate for five years and then automatically convert it into a variable mortgage. Spanish lenders rarely offer this option.
Interest-only mortgages are less popular than other types of mortgages in Spain. Only residents can take out this type of mortgage, which allows you to pay off just the interest for the first term of the mortgage. While you can save money on your monthly repayments with an interest-only mortgage, you will often pay more in the long run, as it takes a lot longer to pay off the entire amount.
It’s very unusual for a Spanish bank to provide a loan in a currency other than euros. Although it’s a way of saving costs on the exchange rate, the Spanish bank might charge you more for the benefit of paying in your home currency.
Spanish mortgages for seniors
If you are a Spanish resident over 65 and receive a pension, you can retire in Spain and apply for a Spanish mortgage to buy a home. One product that can benefit expats is a Lifetime Loan. It allows senior residents of Spain to release equity from their homes and convert it into cash. This places a mortgage against the property that doesn’t need to be repaid within the property owner’s lifetime.
Mortgages for other purposes
Commercial property mortgages
If you are an entrepreneur in Spain, you may want to purchase a commercial property for an office, shop, or restaurant. Commercial loans can fund a maximum of 50% of the price or valuation of the business you intend to buy. To apply for a commercial loan, you will need to present the bank or lender with all the documentation related to your business. This can include your business plans, accounts for any previous businesses, and evidence of previous experience.
Construction mortgages are complicated, and the amount you can borrow will depend on your building plans and personal circumstances. You may be able to borrow 50 to 70% of the land and construction costs combined and up to 80% if you’re a resident. The interest rate of a construction mortgage will be higher than for a home that is already completed.
Green mortgages in Spain
Since 2019, the Spanish government has incentivized property buyers to purchase more energy-efficient homes and buildings. However, the property must be new and meet sustainable living standards that are higher than average for the market. Buyers should look for an energy rating of A+, A, or B.
If the house qualifies for a green energy mortgage, the buyer will receive more favorable loan conditions, such as a lower interest rate. Most of the main Spanish banks now offer green mortgages.
Homeowners who wish to borrow money for eco-friendly renovations could benefit from Spain’s new sustainable financing initiative. The European Investment Bank (EIB) and Unión de Créditos Inmobiliarios (UCI) offer new green and sustainable loans to individuals and condominiums investing in building renovations. The projects should lead to at least a 30% improvement in the energy efficiency of the building.
Mortgage rates in Spain
According to Spain’s National Institute of Statistics (INE), at the beginning of 2022, the average mortgage in Spain has an interest rate of 2.25% for variable-rate mortgages and 2.8% for fixed-rate mortgages. Some property buyers might be able to access Spanish mortgages with fixed rates between 1% and 1.5%. Variable rates between Euribor +1% and Euribor + 1.5% are also available.
It’s a good idea to keep an eye on inflation and interest rates. For example, consumer price inflation reached 40-year highs in Spain in March 2022 (9.8%), and international ratings agency S&P Global predicts that the European Central Bank might raise rates by the end of 2022. Euribor interest rates are likely to follow suit.
How much can you borrow for a Spanish mortgage?
For a Spanish mortgage, you will generally need a minimum deposit of 30% of the property’s purchase price. The lender will then finance the remaining 70%. This percentage could be slightly more for Spanish residents and less for non-residents and people buying a vacation home or investment property. The maximum debt to income (DTI) ratio that mortgage lenders will accept is usually around 35-40%, including the mortgage payment.
Online mortgage calculator
You can use one of these free mortgage calculators to find out the approximate monthly payment for your mortgage:
How to apply for a Spanish mortgage
Spanish mortgages are offered by banks and savings banks (cajas) and sold directly by lenders or mortgage brokers. Several international banks also offer mortgages in Spain.
Before applying for a Spanish mortgage, you need the Spanish tax ID number for foreigners (Número de Identificación de Extranjeros – NIE). You can apply at any local police station if you’re in Spain. Otherwise, you should 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
- €9–€12 fee to submit tax form 790
To apply for the mortgage, you will need these 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).
After you apply for a Spanish mortgage
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 with a better offer – which you can then take to the original bank to see if they are willing to improve their original offer.
When you agree to an offer, you will sign the mortgage contract in the presence of the notary (notario). If you’re not able to attend in person, you may be able to appoint a lawyer to represent you. As soon as the notary certifies that all the documents are in order, the deed is ready for taxes.
At some point in this process, it is also a good idea to open a Spanish bank account if you haven’t done so already. This way, you can deposit the money you need to pay the mortgage. Additionally, you will want to know your options for property insurance. Banks usually require that you insure against fire and other disasters.
Banks offering mortgages to expats in Spain
Most of the larger Spanish banks offer mortgages to non-residents, most notably Banco Santander Central Hispano, Banco Bilbao Vizcaya Argentaria (BBVA), and CaixaBank. You can also secure a mortgage through an international bank such as Chase or IMS.
Help with securing a mortgage in Spain
The Spanish government and local banks have launched programs in recent years to make it easier for young people to enter the housing market. For example, in 2021, Santander bank began offering some mortgages at 95% of the LTV ratio for buyers under 35. These buyers only need a 5% downpayment to purchase their first home. If you are a first-time or low-income homebuyer, it is worth inquiring with Spanish lenders to see if there is a mortgage program that applies to your personal circumstances.
Mortgage costs in Spain
A 2019 law has changed the fees associated with Spanish mortgages to be more aligned with other EU countries. These days banks should pay the costs linked to the signing of the loan, such as agency fees, notary fees, registration fees, and the Impuesto Sobre Actos Jurídicos Documentados (AJD) also known as stamp duty.
The borrower pays for the property appraisal, which is always required to secure a mortgage. You will also pay an arrangement fee to the bank when you officially close the deal. Appraisal and arrangement fees should not exceed a combined total of €1500. If a Spanish lender tries to pass all of the fees associated with setting up the mortgage onto you, it is worth shopping around or trying to renegotiate the price.
Taxes and tax relief on Spanish mortgages
In Spain, property tax rates (Impuesto Sobre Bienes Inmuebles – IBI) are set by the local tax authorities. As such, they will vary depending on where you buy your property. You can expect a range from about 0.405% percent to 1.166% of the property value, according to land registry records. You will pay this Spanish tax as long as you own the property on 1 January of any given year, whether you are a resident of Spain or not. However, you can generally pay in installments. Non-resident property owners may also need to pay income tax on any earnings from renting out the property.
If you sell a property in Spain, you have to pay a property transfer tax, Impuesto Transmisiones Patrimoniales (ITP). You will also pay tax on the profit you made from the sale. Spain’s capital gains tax is as follows:
- First €6,000: 19%
- €6,000–€50,000: 21%
- €50,000–€200,000: 23%
- More than €200,000: 26%
- Non-residents: 19%
Exemptions are possible for sellers who are over age 65 and selling their primary residence and those younger than 65 who are selling to buy another Spanish residence.
Property insurance in Spain
Your Spanish mortgage will likely require that you insure your home against fire damage and loss. Life insurance is not mandatory, but many lenders require borrowers to take out life insurance policies that can cover an outstanding mortgage balance.
You may also want to consider getting mortgage insurance, which would protect you if you can’t make mortgage payments. Taking out a life insurance policy and mortgage insurance before applying for a mortgage may even result in better interest rates.
Mortgage repayments in Spain
A monthly Spanish mortgage payment has two parts: capital repayment and interest payment. When you sign the mortgage contract, the bank will give you a printout of the payments you will make over the first year (for variable-rate mortgages) or the entire mortgage term (for fixed-rate mortgages). This document will indicate how much of the payment is the capital and how much the interest is. However, it will show as a single payment on your monthly statement.
Mortgage overpayment and repayment
If you want to pay off your mortgage faster with larger monthly payments, you should first check your mortgage contract to see if this is allowed. Many lenders also have a calculator to show the benefits of overpaying mortgage bills.
Another new Spanish housing regulation benefits homeowners who can pay off their Spanish mortgage early. Nowadays, the fees that banks can charge homeowners for early mortgage repayment are lower and can only be levied if the bank loses money on the deal. The new fee limits are based on the type of mortgage.
Variable-rate mortgage fees:
0.25% in the first three years
0.15% in the first five years
Fixed-rate mortgage fees:
2% in the first ten years
1.5% after ten years
Furthermore, Spanish banks can no longer delay the early repayment of a mortgage. The maximum notification time a bank can require is one month.
It is important to know that simply paying off the debt is not the final step in canceling a Spanish mortgage. You must ask your bank to issue the notarial deed of cancellation (escritura de cancelación de hipoteca). Then, you should present this to the land registry yourself or have a lawyer or gestoria (administration office) do it. You will have to pay the fees and taxes associated with this process.
If you have trouble repaying a Spanish mortgage
These days it is more difficult for a Spanish bank to repossess your home if you cannot make your mortgage payments. The most simple explanation is that if you are in the first half of your mortgage term, you’ll have to miss 12 payments before repossession. If you are in the second half of your mortgage term, you must first miss 15 payments.
That said, missed mortgage payments can still incur fees and penalty interest. So if you have trouble paying your mortgage bill, you should take action quickly. First, you can discuss new terms for your Spanish mortgage with your bank. For example, they might grant you an interest-free period and a longer loan term with lower monthly payments. You could also consider selling the property and using the profit to pay off your debt.
Refinancing a Spanish mortgage
You might be able to benefit from lower interest rates by refinancing your Spanish mortgage. In Spain, you can refinance with the same bank or use a different one. By refinancing, you can:
- Lower your monthly mortgage payment
- Modify the interest rate terms (e.g., going from variable to fixed-rate)
- Get a longer or shorter mortgage term
- Use your home equity to borrow more money