Mortgage Case Study: British and Spanish tax residents

Case Introduction: Tax residents in two different countries

I was approached by a married couple – tax residents in two different countries – that wanted to secure finance over a property they were buying in Barcelona. The main income earner worked on a yacht for most of the year whilst his wife lived in a property they were renting in Barcelona. Although he wasn’t liable for income tax, he earned a salary in GBP and completed a UK tax return and is therefore considered a UK tax resident whilst his wife had always been a tax resident in Spain. They wanted a fixed interest rate for the duration of the mortgage with the ability to make yearly overpayments on the mortgage free of charge.

The Challenges

Having already approached a few banks, the transaction was not as straightforward as our clients had initially hoped. Despite having a good salary, many times the monthly mortgage repayment, there were a number of challenges we had to take into consideration.

Firstly, many banks in Spain are generally not very comfortable with clients where their income is not subject to tax. In some cases, banks will deduct a large percentage from their income in order to calculate affordability, which would have impeded their application. We were also dealing with a married couple with two different tax residencies which is generally not possible when applying for a mortgage in Spain and we also had to deal with new mortgage legislation which meant that only very few banks would offer fixed rates to non-Euro earners.

We were also dealing with a married couple with two different tax residencies which is generally not possible when applying for a mortgage in Spain and we also had to deal with new mortgage legislation which meant that only very few banks would offer fixed rates to non-Euro earners.

The Solution: Non-Spanish application for multiple tax residents

In order to resolve the issue regarding our client’s multiple tax residencies, we decided together that the best approach was to make the application as a non- Spanish resident and in the sole name of the main earner who declared his income abroad. If necessary, his spouse would be able to provide a personal guarantee for the loan so that they would be jointly liable for the mortgage repayments and satisfy the banks’ lending criteria for married couples (married couples are both expected to be on a mortgage application if they hold joint assets). We therefore approached the banks that would consider non taxable individuals and were still able to offer fixed rates to non Euro- earners.

Within a week we had full bank approval for a 70% LTV mortgage, fixed for the full term of 20 years @ 2.49% with the only requirement being the entry into a buildings insurance policy with the bank for the first few years of the mortgage. The lender allowed overpayments of 25% of the outstanding capital free of charge each year satisfying all of the client’s initial requirements and within a very short space of time.

Within a week we had full bank approval for a 70% LTV mortgage, fixed for the full term of 20 years @ 2.49% with the only requirement being the entry into a buildings insurance policy with the bank for the first few years of the mortgage.

The Conclusion

This case in particular had its own complications but it emphasises how every client profile is unique and needs to be individually assessed by a qualified mortgage advisor before the application is submitted to banks. This is especially important in Spain where vendors often expect a 10% deposit to be paid very soon after accepting an offer. All too often we are approached by clients who spend many weeks submitting applications to banks who eventually decline the application as they are not comfortable with the profile. This means that clients need to start the mortgage process again, putting their purchase plans in jeopardy.

Following a full assessment, Mortgage Direct will only apply to the banks that we feel would be best suited to your profile and thus, make sure we secure your mortgage approval in the quickest time possible. Not only that, given the volume of business we present to banks, we can secure you market leading mortgage conditions and an unparalleled level of service.

If you feel we can assist you, please feel free to contact us for a free, no obligation quotation for your mortgage.

Key Characteristics

Client: Married couple

Property Location: Barcelona

Purchase Price: €350,000

Mortgage Required: €245,000

LTV: 70%

Howard Steel

Mortgage Advisor @ Mortgage Direct

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