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Mortgage Case Study: a family holiday home dream saved – in the nick of time

A few days ago, I met a couple living in the UK who found their ideal family holiday home in Spain. The first time I spoke to them, my initial impression was that they seemed quite stressed and within minutes I found out why. As is normal in Spain, the couple signed a contract that required a 10% non-refundable deposit to secure the property. After searching online for Spanish mortgage options, they were confident that they could afford the monthly payments for the modest mortgage they needed. However, things took a turn for the worse when they approached a Spanish bank for assistance. They were informed that obtaining a mortgage was impossible and that their holiday home, along with the deposit, was at stake. What was once a dream had turned into a nightmare.

Finding out the problem – Mortgage’s documentation

Analyzing in-depth the client’s current income, financial obligations, and overall situation, I came to a conclusion that it appeared affordable. However, I suspected there might be an underlying issue, so I probed deeper. As with any mortgage application, the documentation is crucial, and after a thorough review, I discovered the original bank’s hesitation to approve the loan.

The clients were self-employed and, while their current year’s accounts indicated a healthy income, their profits for the previous two years were significantly lower. Typically, banks require a two or three-year income track record from self-employed applicants, and the clients’ recent transition from “sole traders” to a UK limited company meant there were no annual limited company financial statements to demonstrate business profits. Although this may seem like a minor detail, it was yet another factor that raised concerns in the bank’s underwriters’ minds.

As an experienced mortgage adviser who has worked in the UK and in Spain, I understand the challenges that clients face when applying for a mortgage. Banks often ask clients to reapply in a year, which can be discouraging and may lead to the loss of a deposit. To avoid this, it is important to determine why previous years’ profits were low and to explain this to the bank. Additionally, it is necessary to demonstrate that any changes in business status will not impact future profits. While Spanish banks handle numerous non-resident applications, they may not be familiar with the intricacies of self-employment and documentation requirements in other countries.

The solution: justifying the documentation

Collaborating closely with those clients, I was able to present a compelling application to two banks, emphasizing that the business was affected by the pandemic and therefore previous years’ lower income shouldn’t be taken into account. We demonstrated the company’s profitability since transitioning from “sole trader” status using bank statements and management accounts.

We were thrilled when one of the banks responded positively, just in time for a valuation, formal offer, and notary appointments to be arranged. The completion went smoothly, and the clients were able to purchase their dream home.

Conclusion & the moral of the story

It’s important to note that while we can’t guarantee a positive outcome, we strongly recommend starting the application process before making a non-refundable deposit. Thanks to our strong relationships with various banks, understanding of their requirements, and expertise in compiling and presenting documentation, Mortgage Direct can often assist clients in obtaining the necessary mortgage – even if a direct approach to a bank is unsuccessful.

Steve Kennedy Mortgage Adviser

Steve spent many years in Spain, working first in teaching English for business in Barcelona, then in property sales in the northern Costa Blanca. He then moved to the UK where he worked for HSBC bank for twelve years as a fully qualified mortgage adviser. He has returned to Spain to work with Mortgage Direct

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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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