Being fully prepared financially before visiting Spain will enable you to negotiate with sellers in the knowledge you are in the strongest position to buy and have the ability to move quickly without putting at risk your deposit monies.
You only really have 3 choices when it comes to purchasing your dream Spanish home.
Pay cash, UK finance or Spanish finance.
The following information is designed to help you make sense of the noise, and enable you to understand the Spanish finance / mortgage market.
Why would I need independent advice when arranging a Spanish Mortgage?
Because Spanish banks do not always have set criteria’s and rates and some allow their Branch Managers to define rates and costs, as long as these do not go below the minimum set by Head Office. This means that if you visit one Branch of a Spanish Bank, one Manager may offer a better deal on the mortgage in Spain than if you ended up in another branch of the same Bank. All our Spanish loans are direct from the Head Offices and are always at the lowest end of the possible rates achievable and in some circumstances we can gain special pricing or terms for clients of ours.
At H&G we understand the need to provide free advice and an approval in principle service for a Spanish Mortgage. This means before you go house hunting you will know what your maximum budget is, have your finances sorted, and know what cash deposits you will require and how much the entire purchase process will cost with no nasty surprises or misunderstandings at a later date.
We will advise you on all your options for a loan in Spain, not just one option available from a particular Bank, and we will explain the benefits and drawbacks of each option in a clear and concise manner. Contactwww.harriet-george.com
Loan to values for non-residents applying for a mortgage in Spain.
A mortgage in Spain is granted as a percentage of valuation or purchase price whichever is the lower of the two. Maximum loan to values are 70% with many lenders limiting this to 60% for non-tax residents of Spain, or applicants living outside the EU. Higher loan to values may apply where a property is being bought directly from the Bank.
Term you can expect for a mortgage in Spain.
Maximum terms range from between 20 to 30 years. Age restrictions do apply which can vary from Bank to Bank and range from age 60 years to age 75 years. In general where feasible from an affordability point of view Spanish Banks prefer loans are set up at no more than 20 years.
Types of loans available in Spain.
Standard repayment loans are the main product in Spain. Interest only has disappeared from the market. This loss of interest only facilities has happened under pressure from the Bank of Spain.
Fixed rate loans loans are available. Whilst not offered by all Banks they have become increasingly more widely available. Fixed rate Mortgages in Spain for the full term are available at competitive rates but for the best of the fixed rates loan to values are normally a maximum of 60% loan to value. Rates and conditions for 70% loan to value fixed rates in general are not so attractive. Most fixed rate loans have higher early redemption penalties than the variable rate products.
Buy to let mortgages, using rental income as part of the affordability assessment are not available.
Most loans are for purchases only, a small handful of banks allow or can offer mortgages or equity release but where they are offered many restrictions apply.
Self-build loans are very limited in access and generally only cover a percentage of the actual build costs. Mortgages for the purpose of buying just land in Spain is very restricted.
How Spanish Banks assess affordability ratios for a mortgage.
Spanish Banks work off affordability ratios based on net not gross income.
Only incomes shown on personal tax returns are normally taken into account.
Very few Spanish Banks will consider net profits from a company and not all Banks will consider all the full dividends taken by self-employed.
Treatment of existing buy to let mortgages and rental incomes varies considerably from Bank to Bank. A very small number of Spanish Banks will not lend to individuals with more than one investment property in the UK and calculation of the debt outgoing versus rent coming can sometimes make it difficult for buy to let landlords to meet affordability ratios for some of the Banks.
Most Banks will consider 100% of after tax net income but a few limit this to 80%, and some have minimum earning levels. On average to comply with general criteria for gaining a mortgage in Spain your monthly outgoings on loan and debt payments including the new loan will need to be less than 35% of your net income.
Affordability is the main underwriting criteria, the criteria does not relax at lower loan to values and nor is asset wealth considered by the Banks in Spain.
Interest Rates for Spanish non-resident mortgages.
Most loans offered in Spain are variable trackers linked to the 12 month Euribor.
Each bank then offers a margin above Euribor. It is the margin above Euribor that differs between Banks. Many Banks link compulsory products to the rate offered so in order to ascertain actual competitiveness all elements of the loan and all monthly costs attached to it must be considered. Loans are reviewed once a year against prevailing Euribor at review date.
First year premium rates and floor rates attached to Spanish Loans.
A few Banks charge a higher first year rate than the variable rate would be, this then reverts to variable in Year 2. Some Banks previously placed a minimum rate (floor rate) within the mortgage deed. The floor rate was then the rate below which your overall rate will never fall immaterial of how low the Euribor itself drops. This practice has now stopped for all new mortgages in Spain except where the bank requires it to protect themselves against a zero 12 month Euribor.
Early repayment penalties for a mortgage in Spain.
By law early repayment penalties cannot exceed 0.50% in the first 5 years and 0.25% thereafter. This is for partial and full overpayment. If a fixed rate is taken then the redemption penalty maximum increases to 4%. In general all Banks charge the maximum possible which works out for a variable loan at € 500 for every 100k repaid. Early repayment penalties are an area open to negotiation for partial overpayments. One lender allows 25% of capital to be overpaid yearly without penalty for their fixed rate products.
Costs of completing on a Spanish Mortgage.
All Banks charge a fee known as the Bank opening fee or Bank arrangement fee. This fee is taken from the loan amount at completion. Fees for Banks range from 1% to 2% of loan amount.
Other fees associated with a loan in Spain include the following and apart from valuation fee all fees are taken from gross loan amount at completion. Fees cannot be added to loan if the loan to value restriction has been reached.
Notary and land registry fees for mortgage deed which are taken from a nationwide fee scale. Costs will work out around half a percent of loan amount subject to minimum and maximum fees.
Mortgage deed tax known as AJD which can vary from region to region but is around 1.8% of lending. The exact amounts are worked out by a complicated formula based on total loan exposure but are dictated by government not the Banks in Spain.Valuation fees average 0.10% of value.
Spanish Land classifications and other possible loan restrictions.
Banks will lend against property on Urban land. Very few banks will lend on property registered as Rustica or any other classification, and if they do it will be at lower loan to values. When applying for a loan it is best to check the Nota Simple of any potential property early on in the process to check the land status.
Very few Spanish Banks currently offer either construction loans or loans for large reforms. Where they do loan to value restrictions will apply and rates are likely to be higher.
Home buyer valuations for a Spanish Loan.
Valuation levels will only account for meters built which appear on the deeds of the property and are fully registered at land registry. Any overbuild or extensions, or other such changes to the property that have not been registered will not be able to be valued for mortgage purposes. All lenders will use their appointed valuation company although under new legislation you may be able to select a valuation company as long as they a registered company under the Bank of Spain.
Standard Bank valuations are like home buyer reports and are not a structural valuation, nor does the Bank valuation indemnify the buyer against future problems. Very few valuation companies offer structural valuations with full indemnity but if you require this service we can help organize one for you.
Spanish Mortgage deeds.
All loans, in the absence of a consumer credit act, are written into a legally binding deed which is signed by all parties at completion. Once signed it is not possible to change the terms within the deed without incurring costs, and you are bound by the terms under law. Any change to the deed, beyond an agreed reduction in rate or extension of term, is deemed as a new deed by law and all mortgage costs apply again.
Any change to even small areas of the mortgage deed, whilst not possibly instigating tax costs, will incur both Bank charges and notary and land registry costs. It is very rare for these reasons that moving the loan to another lender or making modifications after completion are cost effective or possible.
In Spain it is possible to take over or subrogate an existing loan held against the property. Whilst many Banks have stopped offering this facility due to terms on historic loans, being much better than terms on new loans, it should be explored to see if a loan exists against the property you are buying. If a mortgage is in place, what are the terms and what capital is outstanding, and would the current banks consider subrogation. The key benefit of subrogation is it avoids having to pay mortgage deed tax as this is only applicable on a new loan set up.
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