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Newsletter (Feb 2022): Low Interest Rates, Mortgage Costs and Mortgages based on rental income

Welcome to our monthly newsletter. It feels like every person we have spoken to in the past 2-4 weeks has mentioned how incredibly busy they are. This is across the whole property industry; lawyers, valuers, consultants etc, not just estate agents. One agent we spoke to who sells new build, off-plan properties said they had a record month in January with 30 new clients committing to buy.

The latest statistics from the Spanish Notaries’ Association show that the number of mortgages issued in 2021 rose by over 35% compared with the previous year, with the highest growth seen in Murcia, Cataluña and Cantabria. The popularity of the Balearics continues, with the islands seeing the highest increase in volume of sales, price per m² and amount borrowed.

What is driving this increase? There are various factors including low interest rates (see below), more clients wanting to buy for lifestyle reasons – working from home, early retirement etc. – and clients spending money saved during lockdown.

Interest rates for foreigners

For a standard non-resident profile, typical mortgage rates are 1.75% fixed for 25 years and Euribor + 1.5% for a variable rate mortgage. The Euribor has recently risen though remains negative at -0.285 at the time of writing. This currently results in a variable rate of 1.22% which would typically be revised every 12 months on the policy anniversary. Bank opening fees range from 0 to 1% and whilst most banks insist the client takes out ancillary products such as home and life insurance, this isn’t always the case.

Interest rates are lower for fiscal residents and high value mortgages, we’re achieving fixed rates from 0.95% and variable rates from Euribor + 1% (resultant rate 0.72%). Additional products aren’t usually required.

Of course, depending on the profile of the client and the banks conditions, actual rates can be lower or higher. Rates have been fairly constant since 2019 but are expected to increase as Euribor and inflation increase. Our advice: buy now and secure an exceptionally low rate while you can!

Costs of taking out a mortgage

The costs of purchasing property in Spain with a mortgage can vary considerably depending on the price of the property, the property’s location, the advisers appointed (lawyers, brokers, agents, etc.) and the deal agreed with the vendor or estate agent. Having said that, an estimate of 10-13% of the purchase price is currently a good guide. In our website’s case study, the total costs are exactly 12.46% of the declared price.

Read more about charges

Sole income from property rentals?

We are often asked if a client can apply for a mortgage in Spain if all their income is derived from property rentals. The good news is that yes they can! One example is where we were approached by a client, a UK landlord, looking to purchase a holiday home in Spain. His direct applications to Spanish banks had been declined and the deadline for completion was fast approaching. Although his financial profile was excellent, the banks’ issue was that his income was solely from property rentals.

Read the full story here

Katherine Walkerdine Founding Partner / Business Developer BA (Hons),Cert PFS,Cert CII (MP)

Living in Spain since founding Mortgage Direct in 2006. Prior to that, she had her own practice in London for fifteen years advising high-net-worth clients on their investment and taxation planning. An array of UK and Spanish qualifications.

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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