The property lending system is unusually well developed in Spain. Most Spanish families rush to take advantage of bank loans when buying a residence. It is also important for foreign investors to know that obtaining a mortgage is a very real possibility and should not present any particular difficulties. The guarantee will always be of the property itself, but beyond that the bank only needs to see the customer’s solvency. Therefore, let us take a look at the basic questions that you might be interested in as a potential property buyer in Spain taking out a mortgage.
I am not a Spanish resident. What kind of mortgage am I eligible for? –
Spanish banks provide foreign buyers with a mortgage of up to 50% of the residence’s value, and in some cases may even provide up to 60%. The percentage is higher for Spanish citizens; for residential properties it is possible to get a bank load for up to 80% of the residence’s total value.
What form of documentation do I need to provide? –
1. A document from your employer confirming your income and length of employment, or a document confirming your profits (dividends) if you are self-employed.
2. An income tax declaration for the past two years.
3. A credit background check for your lines of credit from your country of residence (a declaration from the local credit bureau).
4. A certificate confirming property ownership in your country of residence or any other country. The bank may ask you about the value and area of the property you own.
5. A statement from the customer’s bank for the past 6 months confirming the presence of funds that can be transferred to pay for the residence purchased. A letter of recommendation from the bank confirming that you are a reliable customer would also not go amiss.
6. A contract for an advance or reserve on the property, which clearly indicates both the date on which the deal was concluded as well as the amount involved.
Those are the basic documents required. Every now and again, adjustments may be made, which our company’s managers will keep you abreast of. All documents should be translated into Spanish by a certified translator. Our company will provide you with the contact details for Spain-based translators. Furthermore, every Spanish consulate has a translator, which can help you in the event of you wanting to prepare documents back home.
How long does the bank take to reach a decision on the mortgage? –
On deciding whether to issue a loan or not takes from two to four weeks. Within a week of having first spoken to the bank, a property evaluation procedure will take place, on the basis of which the bank shall make its decision by weighing up the risks you present as a customer.
How much can expect to get in the loan? Does it depend on the bank’s own assessment or on the specific amount in the deal? –
The smaller of the two figures will been taken into account: even if the bank’s assessment exceeds the price you intend to buy the property for, which is also written on the contract drawn up with the seller, then the bank will provide you with a loan calculated from the smaller of these two sums. The same thing will also happen if the assessment turns out to be a smaller sum than is to be paid for the residence. For example, a property is for sale for 500,000 Euros, as per the purchase and sale agreement, whereas the assessment puts it at 480,000 Euros. In this case, the bank will grant you a loan of 50%-60% of 480,000 Euros.
How long is the loan issued for? –
Generally speaking, the maximum period for non-residents is 20-25 years. The minimum period is usually for 10 years.
What happens if the loan is repaid early? –
All banks, without exception, allow the early repayment of loans regardless of the amount of time that has passed since it was issued. Figuratively speaking, early repayment of the loan, whether in part or in full, can be made at least the day after registering for the loan. Penalties make up 0.5% of the amount repaid for the first five years after the loan has been issued, and 0.25% for subsequent years. Please note that these conditions may vary depending on the bank.
What kinds of interest rates are currently in force? –
For 2016, the average annual interest rate for Spanish banks is from 1.9% to 2.5%. There are three types of interest rates – variable, fixed and mixed. Variable interest rates are based on Euribor’s figures and are reviewed on an annual basis. Fixed rates do not change over the entire course of the loan, which means you can initially calculate all upcoming payments with the bank’s help. Currently, this is higher than the variable rate as Euribor is at a very low level.
Mixed rates are a combination of both of the above-mentioned rates. Over the first few years (usually from 2 to 5) a fixed rate is used, after which it switches over to a variable rate.
Under today’s economic conditions, it makes the most sense to sign up for a variable rate, due to Euribor’s extremely low index, but events have shown that large jumps do occur, by which low levels can double over a relatively short period of time. If you are really sure that your mortgage is going to last for a long time, in other words more than 5 years, then it is possible that you will feel better off with a more stable fixed rate. It is not easy to calculate the risks, but we can personally say that, over the course of the next year, no sudden increases are planned.
Do I need insurance before registering for the mortgage? –
Yes, without a doubt. The bank is obliged to take out not only insurance on the property you are acquiring, but also life insurance for you. Residential insurance is around 250 – 300 Euros per year, whereas life insurance is about 500 Euros per year.
MY HOUSE BARCELONA works with leading Spanish banks and can help you to register for a mortgage on the most favourable terms possible.
If you would like more detailed information, please get in touch. We’ll be happy to help you!