Mortgages in Spain
The Spanish mortgage industry is still in its infancy compared with the USA and UK. As recently as 25 years ago, mortgages were almost unknown in Spain. However with Spanish banks now having an international outlook, the market here is now very sophisticated and the banks are becoming very innovative in their product range.
The first thing to realise is that, Spanish banks are probably more flexible than their British counterparts. The author of this article recently successfully negotiated a mortgage for a 30 year period for a client aged 64!
What Spanish bank managers like to see are “ingresos”, ie, lots of money coming regularly into the account. So a good accountant is necessary as they also like to see proof of income, ie, payslips (nominas), tax returns, pensions, royalties or whatever. After that the procedure is very similar to the UK. There are some rather hilarious differences but these will be dealt with in the page concerning property purchase in Spain. Also in that page the we will look into the field of costs associated with property purchase in Spain. As far as the bank goes likely costs are as follows:
Survey fee (banks here insist on a pretty comprehensive survey being taken out, there are specialist firms who carry these out and the normal cost is 250 euros.
- A charge of 1% of the value of the property to be subject to the mortgage – Commission.
- 1% notary fee this is in addition to the 1% payable for the registration of the title deed (Escritura).
- There may be various small extra charges depending on the bank. (Ask for a printed offer in English, to avoid any hidden costs, from the bank manager.)
- They will insist you take out a household insurance with the bank. This practice is illegal but “no insurance, no mortgage”. The cost obviously depends on type of property, value etc but is normally 150 –200 euros per annum.
As mentioned before, mortgages in Spain are a relatively new vehicle, but the product range is now almost the same as the UK.
Types of mortgage
- Fixed Rate
The rate of interest is fixed at beginning of mortgage and come hell or high water it stays the same. The maximum period usually 12 years, early repayment can cost 5% of the outstanding sum.
Rates can vary and usually recalculated every year in line with European Central Bank rate. The rate can go up and down dramatically. The Maximum term is 30 years, early repayment normally charged at 1% of the outstanding balance.
There are schemes that allow switching from Fixed to Variable and vice versa. An alternative is a monthly repayment limit, in the event of interest rates rising dramatically. In this case, repayments stay the same but the repayment period is extended.
Recently, interest only loans have become available, this provides a very efficient way to keep repayments down to a minimum for a period of up to 10 years. For example a 100,000 euro loan would cost 268.33 euros per month interest only and 975.80 euros per month repayment basis. Obviously later on one will have to pay a lot more but as a start on the property ladder this is an excellent product.
Unfortunately there is a drawback in that the bank will only lend up to 60% of the valuation of the property.
Terms of mortgages vary from bank to bank, but generally a resident of Spain (with Tarjeta de Residencia) can obtain a loan of up to 30 years or that it will end before the person is 70. Persons living in Spain for more than 183 days per annum, but without
Tarjeta de Residencia are classed as residents for tax purposes but not as residents for mortgages, so they are generally limited to 20 year repayment periods.
Loans are granted up to 80% of valuation, the valuer is usually fairly generous so this tends to be a minimum figure.
A lot also depends on the relationship the bank manager has with his client or the estate agent or developer selling the property.
It is very important to have the formal mortgage offer in written form, if the bank is unable to provide this in English get a translation of it, it literally could save thousands of euros.