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Lending to a company formed in Spain for property purchase


We were contacted by an estate agent in Tenerife who had received a request from clients to view properties in a price range up to €1.4 million. The agent requested we contact them to review their mortgage options for lending to a company and confirm the price range was realistic.

Buyer Profile

The clients, co-directors of a successful UK business, wished to purchase a holiday home in Tenerife. They had already done some research and wanted to investigate the possibility of buying the property through a Spanish subsidiary of the UK company, to be newly formed. The objective of the clients was to structure the purchase in the most tax efficient way possible for when the time came to withdraw the funds from the UK business for the deposit. 

The clients would need a mortgage for the Spanish company of around 50% of the purchase price. The remainder would be provided from surplus funds currently held in the UK company. They had already sought advice from their UK tax adviser on this aspect.

Key Characteristics

Client: UK business owners forming a new company in Spain to facilitate the purchase of a holiday home

Property Location: Tenerife

Property Value: €1,240,000

Mortgage Secured: €700,000 (56%)

Mortgage Term:  20 years

The Process

The first step was to meet the clients online to gather further information and to discuss their requirements in detail. Following analysis of the personal and UK company information it was quickly apparent that the required lending was achievable and we were able to confirm this with the estate agent so that property viewings could commence.

Next, a reputable Spanish lawyer/tax advisor needed to be found who could outline the process, cost and implications of setting up a limited company in Spain (SL).

Things moved quickly from here; the clients had now viewed and made an offer on a villa in Tenerife which had been accepted.

We had already identified a Spanish bank that would be keen to take on this proposal and proceeded to provide the bank with our report and all relevant documentation required to obtain a mortgage approval. Both UK company information and the directors’ personal information were submitted as the directors would be required to act as guarantors for the new Spanish company.

The Outcome

Our relationship with the bank enabled us to quickly achieve an approval in principle for the mortgage, subject only to the property valuation and the incorporation of the Spanish company. This was achieved by carefully presenting the case and supporting documentation to the bank to ensure the clients business and personal circumstances were fully understood.

In the meantime, the appointed lawyer set up the Spanish subsidiary and we assisted the client in obtaining a favourable valuation of the property.

The property will be owned by the newly formed Spanish SL with the co-directors acting as guarantors.

We were able to secure a mortgage of €700,000 at a 2 year fixed rate of 2.75%. This mortgage was more than the minimum 50% required by the clients so they were delighted with this result.

At the time of writing the clients are in the final stages of arranging completion of the purchase of their new villa in Tenerife having potentially made considerable savings on UK taxes. 

The Conclusion

Setting up a company in Spain to buy a property is not for everyone and will not work in every case. It can be more expensive and time consuming than buying in personal names. However, if you operate a successful and profitable company in your home country then it could certainly be an option. 

At Mortgage Direct we have extensive experience of this type of transaction and through our close working relationships with key banks in Spain can quickly establish whether it could work for you.

Whilst it was the client’s duty to seek tax advice from their UK accountant, it was important for us to work closely with the clients, their lawyer in Spain, the estate agent and of course the bank to ensure that all parties were kept fully informed and understood all requirements to achieve a successful outcome. 

Stevan Paul Mortgage Adviser CeMap

Over thirty years financial services industry experience in the UK, performing Advisory and Management roles with leading UK Institutions including Nat West Bank and Britannia. More recently, he has been working as a self-employed Mortgage and Protection Advisor. He holds the UK Financial Planning Certificate and CEMAP qualifications.

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Mortgages taken out in currencies other than the currency in which you earn are considered Foreign Currency Mortgages. Changes in the exchange rate may therefore increase the equivalent value of your debt. Under the Mortgage Law 5/2019 banks in Spain have introduced mechanisms to protect consumers from exchange-rate risk. For more information, please speak to your broker.

Mortgage Direct, S.L. is a company registered in the Registro de Intermediarios de Crédito Inmobiliario del BdE with the nº D108.

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