Financing your property purchase in Spain
When buying a home in Spain, there are several ways to finance a property purchase if you are not a cash buyer. These include equity release and getting a mortgage.
Equity release
If you already own a property and have equity in it, it may be possible to raise money by mortgaging this property. This is an inexpensive way to raise financing because if the property is located outside of Spain, then you can avoid the costs of setting up a Spanish mortgage.
Mortgage
It is possible to secure a mortgage for the property you are buying in Spain by obtaining a mortgage from a local Spanish bank. We have great contacts with local banks and we can help you obtain a mortgage. Some banks are able to give very quick, preliminary approval on the operation without requiring a valuation and they can even do this via email. In this case, the final approval is subject to the results of the valuation. Many of our clients send the information required directly to the bank via email and they don’t meet the bank until the moment they complete the purchase.
Generally, mortgages from Spanish banks for non-residents have terms of up to 30 years. However, the actual term depends on your age (or the average age of all of the people taking the mortgage) because most banks want the mortgage to be repaid before the borrower reaches 65. Exceptions can be made to this age limit, but it all depends on your personal situation.
After the financial crisis of 2008, banks are more conservative, but they are still lending. If your income level warrants it and you can prove that you can comfortably make the repayments (of capital plus interest), then it is possible to obtain a mortgage. The banks want to ensure that the mortgage payments don’t represent more than 30% to 35% of your net, disposable income. The interesting thing is that the banks only take into consideration the current interest rates; they don’t factor in future increases. It is generally possible to receive an interest-only period of up to two years that you can use at some point during the term of the mortgage.
Most Spanish mortgages are based on a variable, not a fixed, interest rate. The mortgages are generally based on the Euribor index.
The value of the mortgage granted to a non-resident for a second home is normally up to a maximum of 70% of the lower of the declared price or the valuation. If you are a resident of Spain and the property will be your main residence, you can borrow up to 80%. The maximum amount a bank will lend is one of the first questions you should ask them. Some banks say they will lend a high percentage, but then the valuations they give on the property are low and so the actual percentage that they are lending is the same as the other banks with lower percentages but realistic valuations.
For non-residents, the banks are concerned with income levels more than on total outgoings and property held outside of Spain. Spanish lenders don’t tend to take into consideration any potential future rental income that can be earned on the property you intend to purchase.