A guide to Spanish mortgages

If you plan to buy property in Spain, read our guide to see what Spanish mortgages are available to expats and how to apply.

There are no restrictions on foreign buyers purchasing property in Spain, but it’s important to be aware of the specifics of Spanish mortgages before buying your own property.

Here, we explain the main things you should consider before applying for a mortgage in Spain.

Should you buy property in Spain?

In the last couple of years, the property market in Spain has finally picked up after a long slump following the financial crash.

In November 2018, house prices increased by 5.6%, and it’s been predicted that the market will remain buoyant in 2019.

Spanish mortgage lenders offer an array of mortgage products specifically designed for foreign and expat investors, and the government operates a special visa-and-property scheme.

If you’re buying in Spain, you’ll need to think long-term, as Spain’s capital gains tax of more than 20% can offset any benefits of buying for short-term investors.

Additionally, buyers need to factor in property transaction costs of around 10–15% of the property’s value. Even if house prices rise, it is still likely that you’ll need a minimum of three to five years to offset these costs

Spain’s golden visa for international property buyers

During the market downturn, the Spanish government moved to welcome foreign investment in real estate. This means that under certain conditions – including a minimum investment level which can be spread among several properties – investors can receive a Spanish residency permit.

The 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 €500,000 (without financing).

A Spanish consulate in your home country will be able to provide information about getting a Spanish golden visa.

Types of Spanish mortgages

Spain offers the usual types of mortgages, with additional expat-focused Spanish mortgages offered by international banks and Spanish banks.

Many Spanish mortgages have no restrictions on purchase price or nationality, though some products favor buyers from specific countries, or buying property in certain regions.

The biggest difference between residential and non-residential loans is the maximum loan-to-value (LTV) that banks will allow. Residents can generally borrow up to 80% of the property’s assessed value whereas non-residents are limited to 60–70% LTV, depending on the mortgage type.

The good news is that it may be possible to borrow significantly more of the property’s value – up to 100% in some cases – when buying a bank’s repossessed property in Spain.

Some banks might only be willing to provide a mortgage to foreign buyers for their own real estate listings. In this case, your options for getting a mortgage may be closely tied to a particular property.

In some cases, the mortgage you get may be based on the bank assessor’s valuation of the property rather than the price you’re paying for it. Thus, if an assessor valued your property at €125,000, you could traditionally borrow up to €87,500, even if your purchase price was only €100,000.

Spanish mortgage calculators

Most Spanish mortgages are variable rates linked to the yearly Euribor (European inter-bank offered rate) plus a margin.

For example, with Euribor at -0.37% at the start of 2019, and variable-rate mortgage rates ranging from 1.8–3%, you could theoretically pay just 1.43%.

Many lenders also offer fixed-rate mortgages, which range from 2.4–3%, depending on the loan term.

Cost of getting a Spanish mortgage

If using a Spanish mortgage lender, you should allow up to 10-15% of the total purchase amount for various transaction costs.

Thus, if your property is valued at €120,000 and you can borrow 70% of this amount, you will need to have a €36,000 down payment plus up to €1,760 in savings.

Typical closing costs include transfer and stamp taxes (explained below), the bank’s arrangement fee and opening fee, a notary fee and registry fee, and a 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.

Taxes on Spanish property purchases

Residential properties are subject to various Spanish taxes, which are all paid by the buyer. Transfer tax is up to 10% of the purchase price, depending on the property’s location. For example, transfer tax in Madrid is set at 6.1%, but in Catalonia and Valencia you’ll pay the highest rate of 10%.

The stamp tax also varies by location and ranges between 0.5–1.5% 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 fees are typically included in the mortgage closing costs, though they may need to be paid directly to one or more taxing authorities.

Property insurance in Spain

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 borrowers to take out life insurance policies sufficient to pay off the outstanding mortgage balance.

You may also want to consider getting mortgage insurance, which would protect you if you can’t make mortgage payments. Having an active life insurance policy and a mortgage insurance policy before applying for a mortgage may even provide access to better interest rates.

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 19–21% tax on capital gains (if you sell your property).

You may also be subject to pay wealth taxes on your worldwide assets. If your assets are greater than €2m you can be required to pay a tax of up to 2.5% of your total worldwide asset value. Read more in our full guide to taxes in Spain.

In addition to taxing rental property income, Spain also levies a property tax between 1% and 2% of the property’s value per year, depending on location. You may also be subject to a special assessment of 3% 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% 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) – an 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 get 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 of 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
• €9–€12 fee to submit tax form 790

How to apply for Spanish mortgages

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.

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.

Documents to apply for a Spanish mortgage

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.

Extra costs of applying for a mortgage

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.

Find a property in Spain using Expatica’s housing search.