Mortgages in Spain
The system in Spain for securing a loan against a property is very similar to that in the UK and other European countries, but there are a few fundamental differences to bear in mind when dealing with Spanish mortgage lenders for the first time:
In Spain, the loan is secured against the property, not against the person. Therefore, it is extremely common for mortgages to be transferred from seller to buyer. This system is called mortgage subrogation.
Subrogation has many advantages and is significantly more cost-effective for both buyer and seller. The mortgage registration number with the Spanish land registry essentially stays the same, but the terms and conditions, amount borrowed and length of time of the mortgage can be adjusted to fit the criteria of the purchaser, within the bank’s limitations.
Remember, however, that the mortgage must stay with the current lender; it cannot be transferred to another bank.
Loan to Value
Spanish mortgages are still calculated on a ‘loan to value’ (or LTV) basis, rather than purely on income received. Gone are the days when the banks only required an applicant to have a passport and a pulse, and valuations were carried out by waving a finger in the air to gauge the market value.
New mortgage business and subrogated mortgages require a bank valuation, and banks are offering between 60 and 70% of their market valuation. Spanish bank valuations should not be confused with surveyors’ reports or structural surveys. Spanish valuation companies carry out an inspection of the property to photograph it and check that it is standing. They measure the property and the plot that it stands on, and ensure these measurements against the title deeds or escritura.
100% mortgage offers on Key Ready Properties
Spanish property developers raised finance from the banks, often by way of a supporting bank for each resort or development. In order to finish the properties that had not been purchased off plan by individuals, developers took bank loans against the unsold properties. These properties are now available with 90% or 100% mortgages because the banks are looking to reduce the number of properties that they own on a particular resort and are therefore happy to sign over the debt in its entirety to a private purchaser.
They can offer properties for the value of their existing loan to reduce their property portfolio. In addition to 100% mortgages, often the banks offer fantastic interest-only deals.
Interest Only vs Repayment mortgages
In general, mortgages in Spain are on a repayment basis. Some banks do offer an initial interest-only period to attract customers, but mortgages then tend to revert to repayment for the remainder of the mortgage term.
Diversity of Mortgage Products
Spanish banks offer a very limited selection of mortgage products and have rather a blinkered approach to the market place. Don´t expect Tracker Mortgages or ‘offset’ against saving funds: Repayment Mortgages are the norm.
Choosing your Mortgage Lender
If you are buying a house and subrogating the existing mortgage, then there is no choice: you must use the existing lender and negotiate terms with them. If you are buying from a private vendor and want to transfer the mortgage, then, once again, you must go with their existing lender. Of course, with a private vendor you always have the option of canceling the existing mortgage and taking out a new mortgage with another lender.
High Street banks are a good place to start if you are starting from scratch and want to raise a mortgage against your Spanish property. There are currently some rumours that the banks are not lending, but these are not altogether true: if you are looking to buy a property on a large resort where the bank has existing loans to the developers or repossessed properties, then the bank will probably turn down the proposal to underwrite yet another mortgage on that development.
Instead, they may offer you another property on the same resort from their existing stock of mortgaged properties for sale. Even if you try to explain you want a specific property, orientation and plot, they will want to sell their own properties first, so they will refuse your loan.
To get around this, and avoid losing the property you have your heart set on, simply approach another bank: one which does not have a stock of repossessions on the resort you have chosen, and they will happily lend on a loan-to-value basis.
Banks will charge a set up cost of between 1 and 1.5% on the mortgage
Valuation Fees are generally around 1% of the value of the property
Notary and Land Registry Fees are normally included in the purchase fees
(if you change lender during your ownership of the house, new Notary and Land Registry Fees will apply)
Cancellation Fees are around 1% of the original amount of the mortgage
Interest Rates are typically set at Eurobor + 1%
If you would like us to use our extensive professional contacts with the local banks, please complete the form and we will do our best to help.
Murcia Villas have frequently worked with two independent mortgage advisers who would be happy to assist in finding the right mortgage to suit your purchase needs.