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To build or not to build? Self-build mortgages (hipotecas autopromotor) in Spain for non-residents

Self-build mortgages has become increasingly popular recently in Spain. With property prices on the up in many regions over the past few years, we’ve seen a huge increase of client enquiries in relation to building their own properties in Spain. Many are doing so to make the most out of still relatively low interest rates and to potentially achieve a capital gain as well. In many areas of Spain, including the Balearic Islands, the sheer lack of housing supply and high prices are significant factors enticing clients to look at building their own property.

This article is focused only on clients looking to finance their own home, not those building multiple unit properties or on development finance.

Will a bank lend me funds to build my own house in Spain?

Yes, but not all banks. Some Spanish banks reserve these products for Spanish tax residents. Also note that Private International Banks will not lend to build your own property since they lack the local expertise to control the fund drawdown process (see below).

What do I need to get a mortgage approved?

The most important thing to highlight is that banks will not lend against any building plot. They will only lend against a plot that already has a full project signed off by the College of Architects (Proyecto de Ejercucción visado por el Colegio de Arquitectos) and a building license from the town hall.

How much can I borrow?

Firstly, affordability is assessed like any other mortgage, which in Spain is based your Debt to Income (DTI) ratio. Your broker can help you calculate the size of the mortgage you will be eligible for.

Secondly, for self-build mortgages, banks have different risk policies. Some banks will ask you to firstly finance the acquisition of the plot and will offer to finance 100% of the construction costs (less VAT). Other banks will offer to finance up to 50% of the plot acquisition and 70% of the construction costs. In each case, subject to valuation of course.

The financing for the construction costs is released by the bank in stages, pursuant to updated reports from an architect and intermittent valuations, with usually a final payment made upon receipt of the final build certificate (fin de obra).

Do mortgage conditions alter if I build my own home?

The good news is that banks don’t apply different interest rates for self-build mortgages. At the time of writing, interest rates for large mortgages are approaching 2.8% fixed for 25 years; perhaps still slightly lower over 20 years.

Tips when financing a self-build:

Tip 1: Get your valuation early

If, after speaking to your mortgage broker, you wish to proceed with a mortgage, we would advise you to obtain a valuation before submitting your application to the bank. This is because valuations of plots of land can vary significantly from the purchase price depending on the land classification, location, views etc. Rather than applying for your mortgage based on the purchase price, expected building costs and anticipated value on completion, we recommend that you present the application with a full valuation by a valuer that is recognised by the Bank of Spain. The valuer’s report will include all relevant costs on which the bank will base its lending decision.

Tip 2: Building costs are rising

Building costs have risen around the globe and this is no different in Spain where we’ve seen an increase of 25-30% in construction costs. It is likely that costs will rise significantly from the moment the project is submitted to the Town Hall to when the final building license is obtained. We therefore recommend getting an updated estimate for the build costs from your builder/architect before submitting your mortgage application.

Tip 3: Take extra care with timing

Building licenses are valid for a limited time period, the length of which varies depending on the area. Usually, the construction work must commence within a certain timeframe from the building license being granted and in some cases a percentage of the build must be completed within a certain timeframe too. If the time periods are missed you will be in breach of the license and a new license application will need to be submitted.

Summary

There’s a lot to consider when embarking on a self-build project. Our advice is to only consider taking on a building project in Spain after you have completed a full due diligence of the plot and the area, via a reputable lawyer with knowledge of local  planning legislation. Once you are ready to proceed, speak to us to assess your eligibility for a self-build mortgage and we’d be delighted to assist you through the process.

Contact Howard on howard@mortgagedirectsl.com

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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