Spanish Mortgages

Standard loan to values are up to 70% for non-resident mortgages in Spain and are always linked to the valuation of the property in Spain not the purchase price.

Most Spanish mortgages whilst linked to a percentage of valuation cannot exceed the price declared on the Escritura (title deeds).

Spanish Mortgages Product Ranges

Finance in Spain is predominately linked to a variable rate and on a repayment basis. Spanish variable rate products are generally linked to the yearly euribor (European inter bank offered rate) and your interest rate will be reviewed yearly. Your interest rate after the first 12 months is determined by the euribor at the month of completion plus the fixed margin above that which your selected Spanish bank is charging. There is also an option with some banks to use IRPH (Mortgage Loan Reference Rate) This is the average rate for mortgage loans with terms of over 3 years granted by savings banks for the purchase of free-market homes. Some offshore banks can provide mortgages in sterling secured against your Spanish property purchase, linked to the Bank of England base rate.

There is limited access through banks in Spain to have Interest only terms and fixed rates.

Equity Release and Re-mortgaging in Spain

Releasing equity and remortgaging is available through select lenders in Spain. The legal process of securing a loan in Spain it is more difficult and costly to make any changes to your Spanish mortgage post completion. Raising funds against an unencumbered Spanish property, releasing further funds or changing the terms is controlled by the Bank of Spain and further tax; bank and notary costs will apply. In Spain under the current legislation it is advisable to raise the maximum funding you require for your current and future needs. Lender, product and rates need to be carefully selected to ensure they are the most suitable for your needs. Lender and product hopping, which is now standard practice in the UK, is not advisable in Spain without careful planning and advice.

Term

Spanish mortgages range from 5 to 40 years, are dependent on age and the Spanish finance provider selected. Most Spanish banks will expect the mortgage to be repaid by age 70 but it is possible to obtain a mortgage in Spain up to age 80.

Costs

All Spanish banks charge an arrangement fee for dealing with your mortgage in Spain. Spanish bank opening fees are payable at completion. All other costs in relation to the Spanish mortgage deed including mortgage tax, registry costs and some of the purchase deed costs are deducted from your gross mortgage advance. It is not possible to add your costs to the Spanish mortgage. It is important to check you have accurately assessed and accounted for all expenses to ensure you are not left short of funds for completion day. We would suggest you allow at least 12% of the purchase price to cover your purchase and finance costs in Spain in full and that you make sure you are made fully aware of the provision of costs for completion by your lawyer.

Currency

If you take a Spanish mortgage with a mainland Spanish bank the capital provided and repayments will be in Euros. Offshore lenders can also take security over your Spanish property and many will provide the funds and take repayments in any major currency of your choice. Your interest rate will be linked to the base rate of the currency you select. For most Euro mortgages this will be the yearly euribor.

Underwriting Criteria

Most mortgages in Spain are only granted on a full status basis. It is unwise to allow yourself to be talked into submitting false documentation and you should avoid brokers who offer this service. A fraudulent application could put your Spanish property and your deposits at risk if found to be so at a later date.  Spanish banks will assess your income net of tax and will want to see that the combined existing UK and new Spanish monthly liabilities do not exceed 1/3rd of your proven monthly net income. It is possible with some banks to extend this ratio to 50% of net income and each bank in Spain will underwrite in a slightly different manner. In general Spanish banks will not take in to account any projected rental income from your Spanish property when assessing your application. Having Buy to Lets in the UK can be a problem, you should make your broker aware of this.

Benefits of Raising Finance in Spain

Low interest rates and protection of your UK assets can be some of the key benefits of borrowing in Spain. All alternatives should however be understood and considered before making a final decision.

All banks in Spain will require you to supply your credit file from the UK or may check your credit file direct. Any loans subsequently granted will not be registered on your credit file in the UK.

Spanish mortgage overview

Just like any advanced economy, Spain has a developed mortgage market with a number of lenders offering a great variety of Spanish mortgages. Mortgages in Spain are offered by banks and savings banks (known as Cajas in Spain) and sold either directly by the lenders or through mortgage brokers.

Just like any other developed mortgage market there are big differences in the costs and terms of the Spanish mortgages on offer, ranging from inflexible and expensive mortgages to cheaper and flexible ones. Although the interest charged on all Spanish mortgages is calculated as a function of the base rate set by the European central bank, beyond that mortgage lenders in Spain are relatively free to set the charges and terms of the Spanish mortgages they offer. This translates into significant differences between Spanish mortgages in terms o their costs and conditions. Not only do Spanish mortgages vary in their attractiveness from bank to bank, they also vary considerably within the same bank, and even from branch to branch.

With so many potential lenders, many of which who do not market their Spanish mortgages to foreign buyers, it is difficult if not impossible for foreigners to find the best deals on the market. However if you don't shop around, or use a broker who shops around for you, it is highly likely that you will end up with a product that is expensive and inflexible.

Types of mortgages in Spain



As in other countries such as the United Kingdom the vast majority of mortgages sold in Spain (to both Spaniards and Foreigners) are variable rate mortgages. This means that mortgage repayments vary according to the base rate set by the European central bank. Borrowers with variable rate Spanish mortgages cannot be certain what their mortgage payments will be in the future. If the interest rate falls they will pay less, but if it rises they will pay more.

Most lenders also offer a fixed rate Spanish mortgages. These Spanish mortgages tend to have higher interest payments in the short term but if interest rates rise a fixed-rate Spanish mortgage holder might end up paying less than would be the case with a variable-rate Spanish mortgage. At the very least they give borrowers the ability to know exactly what their mortgage repayments will before a set time into the future.

Some Spanish mortgage lenders have started offering an interest only period, under which borrowers only pay interest on the loan in their mortgage repayments, and then return the capital either at the end of the mortgage or at some point in the future during the lifetime of the mortgage. This kind of Spanish mortgage can be very interesting for foreign investors who plan to rent out their Spanish property to cover the mortgage costs and do not plan to hold their Spanish property for more than 5 years.

Recently Spanish mortgage lenders have increased the life time of mortgages that they are prepared to lend (depending upon the age of the borrower). Whereas in the past most Spanish mortgages were for between 10 and 20 years now most lenders offer mortgages of 30 years or even longer. Longer Spanish mortgages reduce the size of monthly mortgage repayments and therefore stimulate demand for Spanish property by making it accessible to a wider market. This fact, along with the reduction of interest rates to historical lows and the number of foreigners buying property in Spain, have been primary drivers of the Spanish property boom in recent years.

How do Spanish mortgage lenders price their mortgages?

Spanish mortgage lenders will decide how much to lend you and on what terms according to your personal and financial profile. They will want to know how much you earn and what your other financial commitments are (your persona balance sheet - assets and liabilities). As a general rule of thumb its according to earnings multiples whereby your Spanish mortgage repayments will not exceed 35% of your net annual income.

They also take into account what kind of a property you want to buy. If you are borrowing for a Spanish holiday home they will consider this a more risky loan than if you are borrowing for your primary residence. This is because they assume that if you get into financial distress you are more likely to default on your holiday home rather than your primary residence.

In general Spanish mortgage lenders don't like to lend more than 60% to 70% of the value of the property to foreign buyers of Spanish property. They consider foreign mortgage applicants as awkward because their risk profile is harder to gauge than for Spanish clients, and because language can often be a barrier (most of the documentation that lenders prepare is in Spanish). Nevertheless this is starting to change as Spanish mortgage lenders realise how important foreign buyers of Spanish property are and how big the market is. And in the meantime a good Spanish mortgage broker can get foreign buyers a Spanish mortgage with a loan-to-value of up to 70% (depending upon the circumstances of the applicant), with the lowest costs on the market and most flexible terms. This is partly because Spanish mortgage broker specialises in foreign buyers and this experience helps them to quantify the risks on behalf of the Spanish mortgage lender. This changes the attitude of the lender from 'I don't understand foreign clients so I won't lend much and I'll make it expensive just in case' to 'This mortgage broker has given me a very good idea of the credit worthiness of this client so I'm going to lend the client the amount needed and on good terms'. A good Spanish mortgage broker also removes the language problem as they interface between borrower and lender and provide both sides with all the information they need in their respective languages.