Getting Mortgages in Spain
Before the recession hit Spain at the end of 2007, getting mortgages in Spain was pretty simple. Unfortunately, the crisis that hit the property market in Spain resulted in mortgage offers becoming rather elusive for several years, but since 2016 the situation has eased for non-resident property buyers. However, there have been other more recent developments in the Spanish mortgage market that we will look at, including who pays the mortgage fees and the mortgage interest rates in Spain and what that means for buyers getting a mortgage in Spain today.
Getting Spanish mortgages as a non-resident
Spain actively encourages non-resident buyers, because property is a significant element of the Spanish economy. Non-residents can get mortgages in Spain; although they are subject to a few more restrictions than if they were a Spanish buyer. Remember that banks see mortgages on second homes as being slightly more risky. Their thinking is that if an owner runs into financial trouble, they are more likely to default on payments for the second home rather than their main residence. As a result, banks will ask for anything from 30 to 40 percent of the property’s value as a deposit, before making a mortgage offer. However, if you choose to be resident in Spain, the deposit reduces to around 20 percent.
How Spanish banks make a mortgage assessment
On 1 st January 2018, a directive from the Bank of Spain came into force. It instructed Spanish banks to tighten up mortgage lending conditions. The directive brings Spain into line with EU regulations and for property buyers, it means that there will be increased financial scrutiny if the mortgage request is over 80% of loan-to-value. Banks have been instructed to establish a loan-to- income limit, which means the banks will calculate the mortgage repayments as a percentage of a person’s monthly net income after tax. If the percentage comes out above the bank’s set limit, then the banks will not grant the mortgage. It is most likely that they will work on the basis of your debt repayments not exceeding 30-35% of your net earnings. They will also ask you to complete a personal balance sheet to show your existing financial arrangements, and provide documents to prove your income and outgoings.
Other aspects of this directive that affect property buyers getting a mortgage in Spain include how the bank will handle defaults on mortgage payments. If non-payment of the mortgage exceeds three months the provision from the bank must be 60%, which is applied to the amount not covered by the mortgage guarantee. Furthermore, the guarantee has been changed from the property valuation at the time of the mortgage approval, to a new valuation, which some analysts say will be 40% less.
Spanish mortgage interest rates
Spanish mortgage rates follow the European Central Bank lending rates, known as the Euribor. In 2018, the Euribor stood at -0.191, which is fall of almost 60% on April 2017. The April figure is important, because this is the month when the mortgage rate is undergoes an annual reset. Although economists don’t believe that the Euribor will fall much further and now is the time when money is at its cheapest in the Spanish mortgage market. Mortgage specialists suggest that this is the time to look for a fixed rate Spanish mortgage, because we are unlikely to see such low Euribor rates again, at least not for the next 20 to 30 years. It is worth noting that interest-only mortgages are not commonly available in Spain.
Legal change to ‘cláusulas suelo’ in Spain
New buyers should also be aware that the law has changed with regard to cláusulas suelo (interest rate floor clauses) that prevented a significant number of buyers from taking advantage of the very low Euribor rates. The European Court of Justice ordered 40 Spanish banks to refund their clients all the money they had taken from clients through this unfair mortgage practice, which has been upheld by the Spanish Supreme Court. The floor clause should not be applied to any new mortgage, and we add this information only so that you are aware that it has been an issue in the past.
You will need an official valuation of the property, which the buyer pays for. The cost of a valuation depends on the value of the property, so it can range from a few hundred Euros to thousands. You will also need to provide the lender with the ‘nota simple’ from the land registry, which confirms that there are no debts on the property. The fee for setting up the mortgage is generally 1% of the value of the mortgage, but it can vary from 0.5% to 2%, and in the past there was a mortgage fee (stamp duty) payment of around 1.8% of the value of the loan that has now been abolished. In Spain, every document associated with the purchase has to be notarised and the notary’s fees are likely to be around 0.5% of the loan.
New legislation on Spanish mortgage fees payment
With regard to the mortgage fee payment of 1.8% mentioned above, Spain’s Supreme Court ruled in November 2018 that the banks should pay this fee, having previously ruled that borrowers should pay it, and there have been a number of contradictory rulings over this issue, with the banks naturally seeking to preserve the status quo. The government concluded that the Supreme Court had made such a mess of its rulings that it rushed through legislation that states the banks must pay this fee. This came into force in November 2018 and now applies to all new mortgages.
Using a broker
Some buyers prefer to use a broker when looking for a Spanish mortgage. This is largely because the brokers have many contacts with the banks, know the notaries and can ease the process for new buyers. A broker can negotiate the terms of the mortgage with the bank, so having a broker who gets on well with the bank can be a real advantage. The broker’s fee will generally be somewhere between 0.5% and 1% of the value.
iFindSpain can put you in contact with mortgage brokers that are specialists in the Spanish mortgage market. Contact us for more information if you are thinking of getting a mortgage in Spain.
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