Spanish mortgages follow different rules to those you may be used to in the UK or in the US. Here Mortgage Direct, a leading mortgage broker in Spain, provide answers to the frequently asked questions from expats looking to take out a Spanish mortgage.
Written for Expat Network by Mortgage Direct
Why not use local banks and avoid the broker fees?
Working with us you can be confident we will secure lower rates and higher levels of borrowing and provide a much better service than if you go to banks directly yourself. Banks offer us preferential terms to ensure that we continue sending our clients. Another important factor is that the underwriters know that our clients have a negligible rate of default, so they feel more confident approving our cases.
Our involvement eases and speeds up of the process and ensures that the best possible conditions are secured. We do this by working with a network of trusted contacts at each lender, from Branch Managers to Commercial Directors.
What documents do I need to provide?
To provide you with an initial mortgage quote we would need to fully understand your financial profile, so you may not need to provide any documents. To then proceed with the formal application process we would need documents to prove your identity, income, taxes paid in the last few years, assets and debts, which will usually include a credit report from a credit reference agency.
How can I calculate my ability to pay (debt to income ratio)?
To determine what you can borrow, lenders look at your ability to pay and typically allow between 30 and 40% of your net monthly income after tax to pay for all worldwide debts (including the new Spanish mortgage). If you have loans, mortgages or credit cards, these will be taken into account in the calculation, as well as rental payments, alimony (compulsory maintenance payments to ex-spouses/partners or in respect of any children from these relationships) and private school fees.
How do the banks work out what I can afford?
The banks calculate around one third of your net monthly income and that has to be enough to cover your existing debts including any rent you might pay plus the new Spanish mortgage. This calculation sums up your ability to pay, also called the debt-to-income ratio.
What is the maximum amount I can borrow?
Lending in Spain is based on the lower of the valuation or purchase price of the property. The maximum that non-residents (those who do not pay Spanish income tax) can borrow is 70% of the lower figure. If an applicant can show they have been paying Spanish income tax, the maximum is 80%. These are the maximum amounts – not every applicant will qualify for these (see ‘Could I be classified as a fiscal resident’ above).
Who decides on the valuation company?
The bank arranging the mortgage will have a panel of companies they use and will usually select one at random. All valuation companies must be approved by the Bank of Spain
What interest rate will I get?
In most cases the interest rate will be variable and based on the annual Euribor, with an additional percentage (a ‘margin’) added to this. For example if the Euribor is 0.2% and the lender offers Euribor + 1.6%, your rate would be 1.8%. During the variable rate period your repayments would normally be reviewed annually and increased or decreased depending on the 12 monthly Euribor rate at the time.
It is now very common for banks to require a fixed rate period of 6 months or 12 months at the start of the term, for example a rate of 4% for 12 months before the mortgage switches to the variable rate. Fixed rates are available from 5 years upwards and range from 2.5% to 3.5%.
What are the costs involved in the mortgage and property purchase process?
Taxes are different from region to region, which significantly affects the overall costs. For example, property tax (stamp duty) is 10% in the Catalonia and Valencia regions whereas in Madrid it is 6%. As a rule of thumb, excluding Madrid, we say to allow for around between 12% and 15% of the property price, depending on the region. For Madrid, we say around 10%.
Should I appoint a lawyer?
We strongly recommend that you appoint a lawyer. They will ensure that all the necessary checks are carried out on the property. If anything goes wrong, a lawyer’s job is to protect your interests. We recommend that you appoint a fully qualified lawyer who is registered with the College of Lawyers (Colegio de Abogados). If you do not feel you have been sufficiently protected, you can make a complaint to the College of Lawyers and claim compensation.
Could I be classified as a fiscal resident to borrow up to 80% of the purchase price?
To be classed as a fiscal resident (one who pays Spanish income tax), usually you need to be paying these taxes before you apply. Some banks will class you as a resident with as little as 6 months’ payslips if it is clear that you are in a long-term job with a reputable company. Others need to see at least two annual Spanish tax statements (declaraciones de renta).
How long will the process take from assessment to completion?
The timescales involved vary from bank to bank and at different times of the year. We usually say to allow between 4-6 weeks for the whole process and it can take up to 8 weeks to complete, sometimes longer if the holiday month of August falls in between or if you have a complicated profile.
What happens after completion?
The new property deed (Escritura) is normally available within 3 months. This will be available from the lawyer with your name(s) registered as the legal owner(s).
Do buy-to-let mortgages exist?
Not at the moment, I’m afraid. Whilst some banks won’t penalise you for buying with the intention of renting out the property, they don’t take into account any future rental income so the principal of buy-to-let finance is lost.
Do interest only mortgages exist in Spain?
Unfortunately they don’t. Mortgages in Spain are based on repaying the capital with interest from day one meaning that the capital is fully paid off by the end of the term. For construction mortgages, it might be possible, but only for one or two years at the start.
I’m a pensioner – can I get a mortgage?
In principle yes. As long as 1/3rd of the total net monthly pension income supports the new Spanish mortgage payment and any existing debts and significant expenses. Please note, the mortgage will have to be repaid by age 75. One bank offer to age 80 but only on a case-by-case basis.
Will I have to take out life cover?
No you don’t. Whilst compulsory life cover is a feature of many banks, there are some that don’t have this requirement nowadays.
Will the mortgage be with a Spanish bank?
Not necessarily. We work with all Spanish and international banks lending in Spain.
What is a NIE number?
This is an identity 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 (equivalent of the Home Office). Lawyers usually assist with obtaining this number.
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