Buying a Property in Spain
You are thinking of buying a property in Spain, how does one proceed?
Firstly... "with caution".
It is important to be aware that the customs and culture are different on the Med to the rest of Northern Europe.
Purchasing a property in Spain, firstly, is much more costly than buying in the UK. Likely costs are as follows:
- 7% tax, a form of V. A. T.
- 1% payable to notary.
- 1% payable to Land Registry.
Purchase via a mortgage
- All the expenses mentioned above, plus
- 1% commission to bank for looking at application.
- 1% tax registration of mortgage.
- 1% tax notary fee associated with mortgage.
- Compulsory survey, 250 euros,
- Compulsory household insurance.
- Non-obligatory mortgage protection insurance in case of death, loss of employment or injury leading to being unable to work.
Please note though that these are MAXIMUM costs, in some cases where a mortgage is involved this can vary from bank to bank.
An additional point to bear in mind is when a foreigner sells, if he doesn’t have his “Tarjeta de Residencia”, the notary retains (for the tax authorities) a total of 5% of the sale price on the escritura, this is to cover any possible tax liabilities and after 3-9 months all or part of this money will be returned to the seller.
Assuming that a suitable property has been found, what is the next step?
Caveat Emptor: let the buyer beware. Before signing a purchase and sale contract and handing over a hard earned deposit, insist on seeing a copy of the Title Deed (Escritura or even better a “Copia Simple”, this will show if there are any debts or embargoes on the property.
Where one has to be careful is with change of user, new roads etc in the area. The notary here will only look at the land registration side and confirm that there are no debts associated with the property, and register the property at the Land Registry. He or she will NOT inform you that the new A-7 motorway is going through your lounge. It is very important to go to the Town Hall and ask to see planning status for the area, is the lovely agricultural area where your dream house is located subject to a change of planning law and is a big chemical factory going to be pouring out fumes, 24 hours a day in a year’s time? Is that lovely view of the valley going to be lost to the view of 2,000 semis and their associated semi-naked middle-aged northern European white, flabby bellies? This information is readily available in the Town Hall.
Assuming that the “Copia Simple” is fine and you are ready to pay a deposit and sign a purchase and sales contract, how much is a normal deposit?
Usually 10% of the agreed purchase price.
Is this returnable to me if I do not go ahead?
This is a difficult question to answer as it depends on the circumstances. The best type of contract is a “Contrato de Aras”, this stipulates:
- The buyer will lose his deposit if he or she fails to complete due to a change of mind or if their partner runs off with a waiter. A clause can be inserted covering other possible reasons for failing to complete, mortgage refusal, property being let to tenants who refuse to move etc.
- To protect the purchaser against heavy costs arranging mortgage etc and then the seller changing their mind, the seller promises to return an amount equal to DOUBLE the deposit if they decide not to sell.
Once this transaction goes through normally in an estate agents office or in the house of the seller, a date is agreed when the deal will be finalised at the Notary office. Some days before the agreed date, a copy of the Escritura, passports, identity cards etc are left with the notary so that the contracts may be drawn up.
On the day, the contracts are handed over to the parties concerned, seller, buyer and bank manager, if a mortgage is involved. In the case of the buyer or seller not being Spanish, the documents have to be officially translated into the native language. I mentioned in another article that this operation can be hilarious and not very “northern European”.
Let me quote you an example.
Firstly. I had better explain that on the title deed the purchase price is very rarely the agreed price, usually it is 60-70% of that figure. The reason for this is to save tax both for the buyer and the seller, as all costs and taxes are calculated on the figure that appears in the escritura, so any reduction is useful. The tax man knows this goes on but for the moment is prepared to accept it.
However back to my story… A client was selling his flat in Torrevieja for 90.000 euros and he had an outstanding mortgage of 60.000 euros. The purchaser arranged a mortgage for 70.000 euros with another bank and it was agreed that this would be the figure placed on the escritura.
So how much did my client receive? Not 30.000 euros in one go, ie the difference between 90.000 sale price and the 60.000 euros he owed on the mortgage. What happened was as follows:
- A cheque for 60.000 euros was paid from one bank to another to discharge the mortgage.
- The purchaser’s bank gave him, my client, a cheque for 10.000 euros, ie, the difference between the 60.000 euros they had paid to discharge his mortgage and the 70.000 euros which was the price on the escritura. All this was “Plan A”.
- He was then given an envelope containing 20.000 euros in notes, “Plan B”, to cover the difference between the 90.000 euros agreed price and the 70.000 euros escritura price.
You may wonder where was the notary?
He conveniently disappeared whenever the words “money” or “payment” were mentioned and came back when the coast was clear. Truly, a “Pontius Pilate” for the modern world.
This is entirely normal and goes on every day in the hundreds of Notary offices throughout Spain and probably Italy and Greece as well. Don’t let it put you off, there are now 1. 3 million properties owned by foreigners, and contrary to what the gutter press in the UK say, I doubt if 1% have had problems. Just remember Spain is different, keep your eyes open, your pen in your pocket and get EVERTHING in writing then get it translated, then sign. Do not be pressurised into buying the first property you are shown, there may be 6 people after it, if you lose it, too bad, there are thousands of beautiful properties around and if someone gets in before you so be it.