Why self-build mortgages are gaining popularity
Self-build mortgages are becoming increasingly popular in Spain. With property prices rising in many areas, including the Balearic Islands, more clients are considering building their own homes. This trend is driven by the desire to take advantage of relatively low interest rates and to potentially earn capital gains. The shortage of available properties and high prices in many regions are also key factors encouraging people to explore self-building.
This guide focuses on financing options for individuals looking to build their own home, not for those developing multiple units or seeking development finance.
Can you get a mortgage to build your own home in Spain?
Yes, but not all banks offer this option. Some Spanish banks only provide self-build mortgages to Spanish tax residents. Private international banks typically do not offer these mortgages due to their lack of local expertise in managing the fund drawdown process.
What you need to get a self-build mortgage?
To qualify for a self-build mortgage in Spain, banks require:
- A fully approved project by the College of Architects (Proyecto de Ejecución visado por el Colegio de Arquitectos).
- A valid building license from the town hall.
Banks will not approve loans for plots that do not meet these criteria.
How much can you borrow for a self-build project?
The amount you can borrow depends on several factors:
- Affordability assessment: Like any mortgage, the amount you can borrow is based on your Debt-to-Income (DTI) ratio. Your broker can help you calculate the maximum amount you are eligible for.
- Bank policies: Different banks have varying policies for self-build mortgages:
- Some banks will finance up to 100% of construction costs (excluding VAT) but require you to first finance the plot purchase.
- Others may finance up to 50% of the plot cost and 70% of construction costs.
Funds for construction are released in stages, based on reports from an architect and periodic valuations, with the final payment made once the building is completed and certified (fin de obra).
Mortgage conditions for self-build projects
The good news is that self-build mortgages generally have similar interest rates to standard mortgages. Currently, fixed interest rates for large mortgages are around 2.8% for 25 years, and slightly lower for 20 years.
Tips for financing your self-build projects
Tip 1: Get an early valuation
Before applying for a mortgage, obtain a valuation of the land. Valuations can vary widely based on location and other factors. A valuation report from a recognized valuer can provide a solid foundation for your mortgage application.
Tip 2: Be aware of rising building costs
Building costs have surged globally, including in Spain. Recent increases of 25-30% in construction costs can impact your budget. To avoid surprises, get an updated cost estimate from your builder or architect before applying for a mortgage.
Tip 3: Pay attention to timing
Building licenses are valid for a limited period. Construction must start within a specified timeframe, and some areas require a certain percentage of the build to be completed by specific deadlines. Missing these deadlines can result in needing a new license. Ensure you understand and adhere to these timelines to avoid complications.
Summary
Thinking about self-build mortgages in Spain as an option? Consult a knowledgeable local lawyer to navigate planning regulations.
When ready, reach out to us to assess your eligibility for a self-build mortgage. We’re here to help you through every step of the process and make your dream of building a home in Spain a reality.
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