Getting a mortgage in Spain is a pretty straightforward process, especially if you are familiarized with these matters in other countries.
Since we are deep in a context of globalization and financial services is the most universal and interconnected field, financing schemes tend to merge and follow similar patterns worldwide. By this I mean that it is already of common knowledge that most property buyers need to apply for loans from the banks, which offer the money in return of a certain interest rate to make profit in the long run, and that this rate can be fixed (between 2 and 4% approx. in Spain), variable or mixed depending on each particular case.
It is like that in Spain, in the UK, in the USA and probably every where in the world. However, our goal in this article is to make clear for foreigners how it is to get a mortgage in Spain and what might be worth knowing, especially for Brits, which are the biggest foreign community on our land and often ignore to what extent Brexit might have changed the state of things.
In order to be more graphic, I am going to write some notes on this:
- Although this could sound obvious for Spaniards, we better make it clear: the house you buy must be in Spain. Applying for a loan in Spain to purchase one in another territory will simply not work, given that banks want to be certain that they could take over your debt (guaranteed by the house itself) and foreign land can be inaccessible from a legal standpoint.
- For the property cost, you must bear in mind that additional expenses amount to around 10% of the selling price. These include notary, registry, taxes and real estate and legal fees, if these last two apply. Of course, this depends on the nature of every particular case, but calculating your budget according to this +10% is very convenient to avoid unpleasant surprises in the future.
- There is, as you may know, a concept called Loan to Value (LTV), which is used to calculate how much of the property cost is going to be covered by the mortgage. Nowadays it is very unlikely that a bank offers to lend 100% of the house value; the amount varies but lays at about 70%. So, keep in mind also that you will need some good savings in order to purchase a property even with a loan.
- The amortization period is quite wide, but usually the maximum number of years to repay the whole loan is 30 years. Nevertheless, there are also cases that get as far as 40 years, but for non-residents it does not generally go further than 20 or 25. Obviously, the longer you take to pay your debt, the smaller the monthly fee you face. But probably you will pay larger interest rates, since the bank realises it will need more time to get its money back.
- Getting your loan can take between 1 and 2 months. It depends on how easy the process goes: the speed of interaction with the bank, the complexity of the case, the problems that might arise with the appraisal, etc.
- Regardless of having a fixed interest rate or a variable one, you must be aware of the distinction between two key concepts: TIN and TAE. TIN stands for “Tipo de Interés Nominal”, which refers simply to the interest rate you pay to the bank. It comes as a sum of Euribor or the index used as reference plus the differential applied by the bank for its profit. This number is highly relevant, but in order to do a proper comparison between loans from different banks and see the real final cost we will have to face, we need the TAE. TAE stands for “Tasa Anual Equivalente”, whose translation does not reveal much by itself but includes not only the nominal interest rate but also all the different costs, burdens and charges related to the loan. TAE is, by definition, largen than TIN, and it is comparing the TAEs between different mortgage options and banks what will lead you to make better decisions.
- As for the payment of the loan, you must be familiarised with the concept of “principal” and “interest”. Although this does not change anything in practice, it is convenient to know that in Spain we use the French method, by which in the early stages of the loan virtually all you pay is interests and a little proportion of principal, changing this pattern along the years until in the end you are only paying the principal and got rid of the interests.
- You will need a good number of documents in order to have a peaceful and stress-free mortgage application: passport, NIE (Foreign Identification Number, which is very easy and fast to get both from abroad or once in Spain), marriage certificate if applies, proof of stable income and information about any assets, debts, properties or previous loans, tax returns from last year, and the purchase agreement with the seller. And these documents must be legalized and translated into Spanish.
We know: it sounds like too much. But remember that you are buying a real estate property in a foreign country; it is a serious issue that involves a high investment and highly important bureaucratic procedures. Nonetheless, counting on the assistance of legal experts like us can help to make it fairly smooth.
- Be careful with the Golden Visa: although this privileged visa is very convenient for everyone who resides out of the EU or the EEA, you must bear in mind that the 500.000 euros that you need as real estate investment in order to qualify have to come from your own resources. From these 500.000 euros on, you can use mortgages and still get that visa.
- For example: you buy a house in Marbella for 600.000 euros unencumbered. In this case, at most 100.000 euros could come from loans, and the rest from your personal savings.
- Contrary to what many people think, Brexit has not affected the Brits’ right to buy a house abroad, including Spain.
- The same applied for the costs: the expenses related to buying a property are not affected by your nationality.
- What has changed is the tax rate applied to your rental income for properties in Spain, which is a fixed rate of 19% for EU citizens and 24% for outsiders. This last case is the one that applied to UK nationals from now on.
- All the rest: taxes, bureaucratic steps as foreign buyer/borrower from the bank, remain exactly the same, meaning that they only vary according to the tax residency status of the individual.