Standard repayment loans are the main product offered by lenders in Spain, and interest-only mortgages have largely disappeared from the market under pressure from the Bank of Spain.
Fixed rate loans are widely available and are now offered by nearly all Banks in Spain. They are generally for the full term and available at competitive rates. Due to a low Euribor rate, which is tracked by variable rate products, fixed rate mortgages are currently more expensive than variable rate loans, but will provide long term stability. Most fixed rate loans have higher early redemption penalties than variable rate products.
Buy-to-let mortgages that use rental income as part of the affordability assessment are not available in Spain, but lenders will not prevent you from renting out the property.
Most loans are for purchases only, but a small handful of banks do offer remortgages or equity release although many restrictions typically apply. Re-mortgages at present are only considered for clients who have an interest-only full-term loan coming to an end where the capital would have to be paid up in full.
Self-build loans in Spain are very limited in access and generally only cover a percentage of the actual build costs. Mortgages for the purpose of buying land plots in Spain are also very restricted.
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How Spanish Banks assess affordability ratios for a mortgage
Affordability is the main underwriting criteria for obtaining a mortgage in Spain, and the criteria is not relaxed for lower loan-to-value applications, nor is asset wealth considered by the banks in Spain.
Spanish Banks calculate affordability ratios based on NET rather than gross income.
This means only income shown on a personal tax return is are normally taken into account. Very few Spanish banks will consider net profits from a company, and not all banks will consider the full dividends taken by self-employed proprietors.
Most Banks will consider 100% of your after-tax net income, but a few limit this to 80%, and some have minimum earning levels. On average, to comply with the general criteria for obtaining a mortgage in Spain your monthly outgoings on loan and debt repayments, including the new loan, will need to be less than 35% of your net income.
The treatment of existing buy-to-let mortgages and rental incomes varies considerably from bank to bank in Spain. A few Spanish banks will not lend to individuals with more than one investment property in the UK, and calculation of debts versus rental income can sometimes make it difficult for buy to let landlords to meet affordability ratios for some of the banks. We will help you navigate the local market.
Interest Rates for non-resident mortgages
Most loans offered in Spain are variable trackers linked to the 12 month Euribor rate. Each bank then offers a margin above Euribor. It is the margin above Euribor that differs between lenders. Many banks link compulsory additional products to the mortgage offer, so in order to ascertain actual competitiveness all elements of the loan and all monthly costs associated with it must be considered. Our team of specialists will analyse this for you. Loans are then reviewed once a year against the prevailing Euribor at a given review date.
First year premiums and floor rates for Spanish Loans
A few banks typically charge a higher first year rate than the variable rate, which then reverts back to variable in Year 2. Some Banks previously placed a minimum rate ( floor rate ) within the mortgage deed. The floor rate was the rate below which your overall rate will never fall regardless of how low the Euribor itself drops. This practice has now been stopped for all new mortgages in Spain except where the bank requires it to protect themselves against a zero 12-month Euribor.
Early repayment penalties for a mortgage in Spain
By law early repayment penalties cannot exceed 0.50% in the first 5 years and 0.25% thereafter. This is for partial and full overpayment. For fixed rate mortgages the maximum redemption penalty can increase to 4%. In general most banks charge the maximum possible, which for variable loans works out at €500 for every €100k repaid. Early repayment penalties are an area open to negotiation for partial overpayments, and we have one lender that allows 25% of capital to be overpaid every year without penalty for their fixed rate products.
Costs of completing on a Spanish Mortgage
All banks in Spain charge a fee for Spanish loans known as the bank opening fee or bank arrangement fee. This fee is deducted from the loan amount at completion. Bank opening fees range from 1% to 2% of the loan amount.
Other fees associated with a loan in Spain include the following, and apart from the property valuation fee, all fees are taken from the gross loan amount at completion. Fees cannot be added to the loan if the loan to value limit has been reached.
- Notary and land registry fees are taken from a nationwide fee scale. Costs will work out around half a percent of the loan amount subject to minimum and maximum fees.
- Mortgage deed tax known as AJD which can vary from region to region but is around 1.8% of lending. The exact amounts are calculated by a complicated formula based on total loan exposure. This is dictated by the Spanish government not the banks in Spain.
- Valuation fees typically average 0.10% of property value.
Spanish Land classifications and other possible loan restrictions
Spanish banks will only lend against property on urban land. Very few banks will lend on property registered as Rustic or any other classification, and if they do it will be at lower loan to values. When applying for a loan we will check the Nota Simple of any potential property early on in the purchase process to check the land status.
Very few Spanish banks currently offer either construction loans or loans for large reforms. Where they do, loan to value restrictions will apply and rates are likely to be higher.
Property Valuations for Spanish Loans
Property valuation levels will only account for built meters that are stated on the property deed and which are fully registered at the land registry. Any overbuild or extensions, or other such changes to the property that have not been registered will not be applicable for mortgage valuation purposes. Lenders will use their own appointed valuation company, although under new legislation you may be able to select a valuation company as long as they a registered by the Bank of Spain.
Standard Bank valuations are like home buyer reports and are not a structural valuation, nor does the Bank valuation indemnify the buyer against future problems. Very few valuation companies offer structural valuations with full indemnity, but if you require this service we can organize it for you.
Spanish Mortgage deeds
In the absence of a Spanish consumer credit act, all loans are written into a legally binding title deed which is signed by all parties at completion of sale at public notary. Once signed it is not possible to change the terms within the deed without incurring costs, and you are legally bound by the terms. Any change to the deed, beyond an agreed reduction in rate or an extension of repayment term, is deemed to be a new deed by law and all mortgage costs apply again. Even small changes to the mortgage deed will incur both bank charges and notary and land registry costs. For these reasons it is very rare that changing lenders or making modifications after completion is cost effective.
Subrogation
In Spain it is possible to take over or subrogate an existing loan held against the property. Whilst many banks have stopped offering this facility due to the terms and conditions on historic loans, it should always be explored to see if a loan exists against the property you are buying as the terms are likely to be much better than the terms on new loans. If an existing mortgage is in place, we will analyse the terms for you and negotiate with the lender to see if subrogation. The key benefit of subrogation is that it avoids having to pay the mortgage deed tax which is only applicable to new loans.
What documents are required for a Spanish Mortgage?
In Spain non-status or limited-document applications do not exist. All Spanish mortgages are granted on a full status basis and each bank will require to see official documentation on incomes and debts.
What information do I need to present if I am self employed?
Self-employed applicants will need to provide the lender with information relating to both their personal fiscal position and their company’s fiscal position. All paperwork will need to be able to be linked to the individual and must support the status claimed by the applicant. We will help you meet these requirements.
What other information will be required for a mortgage in Spain?
Some Spanish banks will require that property information is provided before an application can be risk assessed. The key document required is a Nota Simple which can be supplied by the selling agent or owner. If necessary we can also obtain one for you.
Before completion of sale a copy of the buyers’ NIE certificates will also be required and original certificates of these must be presented at least 48 hours before completion.
Some banks will accept copies when assessing an application, but a few require the original documents for this. In all cases, if the documents are in languages outside the bank’s expertise or are from countries such as Russia that are on the Bank of Spain warning list, then official translations will be required.
Evidence of deposits and their source
Under international money laundering regulations all Spanish banks are obliged to evidence and understand where monies for deposits are being sourced from. Many Spanish Banks will insist that monies for completions are first placed in an account with them. Gifted deposits or deposits raised from borrowing elsewhere are generally not acceptable to lenders in Spain. Our dedicated team of experts will help you comply with these regulations.
