Can you arrange a ‘buy-to-let’ mortgage in Spain?
Buy-to-let products do not exist in Spain and never have. Banks do not take into account future rental income.
Could I be classed as a resident?
To be classed as a fiscal resident (one who pays Spanish income tax), usually you need to be paying these taxes before you apply. Some banks will class you as a resident with as little as 6 months’ payslips, if it is clear that you are in a long-term job with a reputable company. Others need to see at least two annual Spanish tax statements (declaraciónes de renta).
Do I need an insurance?
It is compulsory to have buildings insurance with an insurer of the bank’s choice. In addition, life insurance is nearly always compulsory, also with an insurer of the bank’s choice. We are aware of the banks though that don’t require it.
How do I repay the mortgage?
In nearly all cases, the mortgage will be a repayment mortgage, which means the monthly payment is made up of both capital and interest. Your mortgage will be paid off in full at the end of the term. Some lenders allow you to pay interest-only during the first one or two years of a construction mortgage, but not for the purchase of an existing property.
How much will it cost to buy the property?
Please refer to our Charges page for an example breakdown and explanation of the different charges. At the moment, a general guide is 14-15% of the declared purchase price.
There are many variables that affect the cost when stated as a percentage of the purchase price. For example, taxes vary from region to region and, in some cases, according to the property price. Another important factor is whether clients are applying for the maximum mortgage or a lower amount. We advise all clients to contact us for an estimated cost breakdown relative to their circumstances.
How long does it take?
The timescales involved vary from bank to bank and at different times of the year. We usually say to allow between 4-6 weeks for the whole process and it can take up to 8 weeks to complete, sometimes longer if the holiday month of August falls in between, or if you have a complicated profile.
How much can I borrow?
To determine what you can borrow, lenders look at your ability to pay and typically allow between 30 and 40% of your net monthly income after tax to pay for all worldwide debts (including the new Spanish mortgage). If you have loans, mortgages or credit cards, these will be taken into account in the calculation, as well as rental payments, alimony (compulsory maintenance payments to ex-spouses/partners or in respect of any children from these relationships) and private school fees.
Is there a redemption penalty?
In most cases, there is a redemption penalty of 0.5% of the amount paid off (partial of full) in the first five years and 0.25% of the amount thereafter.
Should I appoint a lawyer?
We strongly recommend that you appoint a lawyer. They will ensure that all the necessary checks are carried out on the property. If anything goes wrong, a lawyer’s job is to protect your interests. We recommend that you appoint a fully qualified lawyer who is registered with the College of Lawyers (Colegio de Abogados). If you do not feel you have been sufficiently protected, you can make a complaint to the College of Lawyers and claim compensation.
What is an NIE number?
This is an identity number for foreigners who register with the authorities in Spain and applicants will receive an official document with their name and number. This number must be presented for various official transactions and it is essential to have an NIE number if you wish to buy a property in Spain. Applying for the number is done via an office of the national police (Policía Nacional) and sanctioned by the Ministerio del Interior (equivalent of the Home Office). Lawyers usually assist with obtaining this number.
What is the best type of mortgage?
This will depend on your circumstances. There are a number of products on the market and Mortgage Direct will discuss your requirements with you before recommending a suitable product.
What is the maximun amount I can borrow?
Lending in Spain is based on the lower of the valuation or purchase price of the property. The maximum that non-residents (those who do not pay Spanish income tax) can borrow is 70% of the lower figure. If an applicant can show they have been paying Spanish income tax, the maximum is 80% of the lower amount. These are the maximum amounts, but not every applicant will qualify for these (see ‘Could I be classified as a fiscal resident’ above).
What happens after completion?
The new property deed (Escritura) is normally available within 3 months. This will be available from the lawyer with your name(s) registered as the legal owner(s).
What interest rate will I get?
In most cases, the interest rate will be variable and based on the annual Euribor, with an additional percentage (a ‘margin’) added to this. For example, if the Euribor is 0,2% and the lender offers Euribor + 1,6%, your rate would be 1,8%. During the variable rate period, your repayments would normally be reviewed annually and increased or decreased depending on the 12 monthly Euribor rate at the time.
It is now very common for banks to require a fixed rate period of 6 months or 12 months at the start of the term, for example a rate of 4% for 12 months before the mortgage switches to the variable rate.Fixed rates are available from 5 years onwards and range from 2,5% to 3,5%.
Who decides on the valuation company?
The bank arranging the mortgage will have a panel of companies they use and will usually select one at random. All companies have to be approved by the Bank of Spain.
Will it be a Spanish bank?
Not necessarily. We work with all Spanish and international banks lending in Spain.
If we have not answered your question here, please contact us and we will be happy to answer it for you.