THE COSTS OF PURCHASING PROPERTY IN SPAIN WITH A MORTGAGE CAN VARY CONSIDERABLY
The costs of purchasing property in Spain with a mortgage can vary considerably depending on the price of the property, the region in which the property is located, the advisers appointed (lawyers, brokers, agents, etc.) and the deal agreed with the vendor or estate agent. Having said that, estimating costs of 12-14% of the purchase price is currently a good guide. In our case study, the total costs are exactly 12.46% of the declared price.
Some banks have minimum opening fees and lawyers, brokers and valuation companies also have minimum fees. This means that for cheaper properties, the costs as a percentage of the property price can be significantly higher than 13%. For properties with a price less than € 40,000, a mortgage may not be the most cost-effective solution.
Always check whether the selling agent has included their commission in the purchase price. Some agents do this and do not charge the purchaser directly. Others do not, so you need to check this out before assessing the overall costs involved.
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The documents required for a mortgage application will vary from bank to bank. Most will not require all the mortgage documents listed below, however, for completeness, we have included a comprehensive list of what banks could theoretically ask for. If we have a specific bank in mind for your application we will send you a copy of the bank’s own checklist or an e-mail confirming exactly what is required, so we recommend that you wait for us to do this before starting to prepare your documents for the application.
Documents required for all applicants:
Solicitors details (name, e-mail address and telephone number)
Purchase or reservation contract
Details of any significant non-debt related payments, such as private school fees,
alimony (maintenance) payments or rental payments (marking bank statements clearly to highlight these is very helpful)
Full UK credit report (for UK applicants go to www.creditexpert.co.uk and download the full Experian report in PDF format) or the equivalent for your home country, where available
NIE number (if you already have it)
Bank statement(s) showing the savings to be used for the deposit, fees and taxes (plus any other assets you can prove to strengthen your case, even if not to be used for the purchase e.g., managed funds, share portfolios etc)
Signed copy of Mortgage Direct’s Terms and Conditions
Estate agents details (name, e-mail address and telephone number)
Current Nota Simple plus a web-link to the property
Completed application form(s)
Details of other loans or debts in Spain, including bank receipts for last 3 payments where appropriate
Bank reference letter, confirming the length of the relationship with the bank and that the accounts are maintained satisfactorily
Latest annual mortgage statement for any properties you may own
Latest 3 bank receipt slips for mortgages (if appropriate) on any properties already owned in Spain
Utility bill (gas, electric or water) proving residence at the current home address
Due to the volume of business, we process in the Costa Del Sol and Costa Blanca North area, we are able to offer our clients bespoke mortgage solutions with exclusive rates and conditions. Whether you are buying an investment property, holiday home or main residence, you will benefit from our level of expertise as accredited Real Estate Loan Assessors by the Bank of Spain. Since the recent legislation of new mortgage rules and regulations, now more than ever, we can ensure that as a foreign buyer, you achieve the best product for your particular needs and requirements.
The Mortgage Dictionary consists of easy-to-understand definitions of terms that are commonly used when buying a property and getting a mortgage in Spain.
Fee of €695 payable to Mortgage Direct if you decide to proceed with a formal mortgage application. This fee has a Money Back Guarantee (see below and also refer to our Terms and Conditions).
Fee you pay to Mortgage Direct for arranging a mortgage. The standard amount is 0,5% of the mortgage amount (minimum €1000) which is payable on completion. For larger mortgage amounts, depending on the work involved, this fee may be negotiable.
This is the fee the bank will charge on completion for arranging the mortgage and is sometimes referred to as the Bank Initial approval fee. The standard fee is 1% of the mortgage amount. Some banks charge 1,5% or even more depending on the complexity of the case or client profile. Some banks have minimum opening fees, which are applied when the mortgage amount is below a certain level.
This is when the purchase and mortgage deeds are signed in front of a notary and the buyer becomes the legal owner of the property.
This is the deed that legalises the purchase and is signed for or on behalf of both the buyer and seller and then notarised by a public notary. The buyer obtains a first copy of the deed once all the taxes have been paid and the details have been inscribed in the land registry.
All variable rate mortgages in Spain are now based on the annual Euribor, commonly referred to as ‘the Euribor’. Although there are 8 different rates (monthly, bi-annual etc.), it is the annual Euirbor that banks nearly all use for mortgages. The Euribor rates are based on the interest rates at which a panel of European banks borrow funds from one another. In the calculation, the highest and lowest 15% of all the quotes collected are eliminated. The remaining rates will be averaged and rounded to three decimal places.
When a mortgage applicant does not have sufficient income to satisfy a bank’s lending criteria they may include a guarantor or guarantors on their mortgage application. The guarantor is typically a close family member and they agree to guarantee the mortgage in the event that the main applicant was not able to keep up the repayments. A guarantor might be a son or daughter whose parent is close to the maximum permitted age for the mortgage or it could be a parent where the son or daughter is on a low income. The guarantor is assessed in the same way as any other applicant.
This is where the Land Registry of Spain keeps detailed data on all properties. It contains the unique property identifier, the names of the owners and their identity numbers, and the details of the property itself including aerial photographs.
This is the commonly used term to describe the ratio (expressed as a percentage) of the mortgage amount to the purchase price, or valuation if lower.
This is the guarantee Mortgage Direct offers its clients, whereby we will refund our Administration Fee of €695, if the mortgage is declined or the amount offered is lower than in our initial quotes and a client does not wish to proceed. We will set out the conditions of his guarantee at the time of requesting the initial payment. Also, please refer to our Terms and Conditions.
Mortgage tax (AJD – actos jurídicos documentados)
This tax is based on the mortgage amount (not the property price) hence we refer to it as ‘mortgage tax’. Many websites refer to it as ‘Stamp Duty’, which is a tax the UK base on the purchase price of a property, so there is sometimes confusion about this tax. The amount itself varies from region to region, but it is supposed to be a statutory amount based on the principal mortgage amount, 3 years’ interest and “costs”. It varies from around 2% to 2,5% depending on the region. As with the ‘Property Transfer Tax’ below, the amounts vary from region to region and many websites offer conflicting information on the actual rates. In fact, many websites quote rates that are several years out-of-date. The bank will confirm the correct amount prior to completion.
This is an identification number for foreigners who register with the authorities in Spain and applicants will receive an official document with their name and number. This number must be presented for various official transactions and it is essential to have an NIE number if you wish to buy a property in Spain. Applying for the number is done via an office of the national police (Policía Nacional) and sanctioned by the “Ministerio del Interior” (the equivalent of the Home Office). Lawyers usually assist with obtaining this number.
A notary is a professional person within the Spanish law system and their main function is to certify Spanish documents ensuring that private agreements fulfil certain legal criteria. The Spanish notary is involved in legalising agreements and contracts and uses an official stamp and signature to endorse them. The notary brings the document into the public domain.
This is a legal document, updated daily, containing the property registration details. From this document a bank and/or valuer can confirm who is the official owner of the property, what is registered in terms of the building, what classification the property is (urban or rustic) and whether there are any charges on the property, for example, if there is a mortgage. It is a very important document for lenders, as they will use it to decide on the suitability of a property for mortgage lending.
The purchaser of a property may not be able to be in Spain for completion, or in fact to open a bank account or perform other official tasks. If so, they can appoint a lawyer or someone else to act on their behalf. To do this, it is necessary to have a Power of Attorney (POA) document or ‘poder’ as it is known in Spain. This document must be notarised and presented whenever the nominated person wishes to perform acts on behalf of the client. POAs can have different levels of power, for example, some allow the nominated person to open bank accounts (not all banks allow this though) or other financial transactions and others do not.
This document is usually signed after the initial reservation contract. The difference is that it includes the amount of money the buyer will pay for the property and any deposit amount, as well as the other contractual agreements between the buyer and seller.These contracts vary in their content, but it is typical that the private purchase contract will include the official deposit amount, which is very often 10% of the purchase price. It will usually include a deadline for completion.
If you buy a second-hand property in Spain, i.e. one that has legally changed hands before, there is a tax to pay that is based on the property price. This tax is known as the Impuesto Transmisiones Patrimoniales (ITP), but we often just refer to it as Property Tax. The amount varies from region to region and some regions have a fixed amount for all properties, whereas other regions have tax bands. As with ‘Mortgage Tax’ above, many websites offer conflicting information on the actual rates. In fact, many websites quote rates that are several years out-of-date or only relate to one specific region. The bank will confirm the correct amount prior to completion.
This is the penalty charged for early redemption of the mortgage prior to the end of the term. The penalties are the same for partial and full redemption. The penalty is expressed as a percentage of the amount paid off early. In the first 5 years, the penalty is usually 0,5% of the amount and 0,25% thereafter. These are the statutory maximums for new mortgages and nearly all banks use these as their standard redemption penalties. If, for example, you paid a lump sum of €10.000 off the mortgage in the first 5 years, the penalty would be €50. If the same amount was paid off early after the first 5 years, the penalty would only be €25.
This contract is usually signed at the point at which the buyer pays a holding deposit to reserve the property. It includes details of the deposit and other conditions of the reservation, which will usually include the time allowed before the buyer must sign a private purchase contract formalising the conditions of the purchase itself.
Properties in Spain are generally classified as being on urban or rustic land. Contrary to what many clients assume, this does not mean that all properties outside villages and towns are on land classified as rustic. There are many properties in the countryside that are actually classified as being “urban”, meaning on urban land. Rustic land properties are, generally speaking, properties in rural settings that have been built on old agricultural land.
Many do not have mains water or electricity, have unpaved roads leading up to them and do not have street lighting or main sewage. Banks are less keen to offer mortgages on rustic land properties and some will not lend at all.
Rustic land properties have far stricter planning rules. In many cases, owners have added extensions and new buildings without planning permissions. Depending on the plot size, it may be that these additions can never be legalized and therefore banks are not willing to lend. Sometimes valuation companies undervalue rustic land properties.
It is important to point out that we have arranged many mortgages for clients buying rustic land properties and we continue to do so. We can achieve the maximum level of lending for urban properties on rustic properties, i.e. up to 70% of the purchase price for non-residents and 80% for fiscal residents.
Before a bank will lend, they are required by law to assess the value of the property. The bank will instruct a valuation with an independent valuation company. Each bank will have a panel of such companies they work with and the company is usually selected at random from this panel. Most banks will instruct the valuation once the mortgage is approved, but there are also banks that require a valuation at the start of the application process. It is always the responsibility of the buyer to pay for this valuation.
This tax is payable when a new property is purchased in Spain. The buyer will be the first legal owner of the new property. This is a different tax to the ‘Property Transfer Tax’ described above and a buyer would pay one or the other, never both. With a new property, the buyer pays the tax directly to the promoter of the development as part of the purchase price. The promoter is then responsible for passing it on to the Government in the usual way.