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Spanish Mortgages

You may want to explore the benefits of financing your Spanish property purchase, as it may well increase your purchase power and potentially minimise your taxes in Spain.

Mortgages are being offered at historically low interest rates and we will be pleased to explore the different finance options that may be available to you.

 

Financing your property in Spain

Shall you consider finance to buy your property in Spain, Financial North® will assist you in obtaining before your visit, a mortgage decision in principle indicative terms from a lender. This way you would have already made the necessary arrangements before coming to Spain and know in advance the price range of the property you would like to buy. 

There are several options where Financial North can assist you in financing the purchase of your property in Spain:

  1. Take a new mortgage on your Spanish property with a private bank in Spain or within Europe, which is registered at the Bank of Spain.
  2. Take a new mortgage in your home country or increase the mortgage (equity release)
  3. Take a loan, using listed financial assets that would be deposited and pledged with the lender.
  4. A combination of the three previous points.

Please note that in all cases, you would need to have at least 40% of the property’s purchase price in ready available savings or positive equity available to remortgage your home property.

Mortgages are, in most cases, Tax Efficient in Spain. Cash buyers should consider taking a mortgage which is registered in Spain, as they can mitigate or eliminate the Spanish “Impuesto del Patrimonio”. This is a progressive tax, so the higher is the purchase price of the property the more taxes you would have to pay annually. For an indicative estimation of the tax benefits when having a mortgage in Spain, please visit Financial North’s Spanish Wealth Tax simulator.

Also interest rates are historically low in Spain, therefore it is good opportunity to obtain a fixed interest rate for up to 25 years and make your money work harder in other investments by leveraging on your Spanish property.

Some international lenders do also provide mortgages in different currencies and up to 10 years of interest only payments.

In those circumstances where you need to complete a property purchase in a short period of time, we can arrange and complete your mortgage at a later stage.

If the seller of the property is a Spanish company, there may be some restrictions on how finance may be available. Please contact us in this case and we would explore the different options.

 

Spanish & International mortgages

Mortgages offered by our lenders’ panel for non-residents in Spain are for a period from 5 up 25 years. If you are a tax resident in Spain, you may apply for a mortgage over 30 years.

Depending of your financial profile, it is possible to get a mortgage for up to 70% of the property price or valuation, whichever is the lower amount. In the case you pledge listed financial assets with the lender, you can finance up to 100% of the purchase price. This would be a combination of a Lombard loan and the mortgage on your Spanish property.

A mortgage must have been fully repaid before the applicant is 75 years old. Therefore, if you were 64 years old already, the maximum term you could apply for it would be a 10 years mortgage. There is an age exception with the Lombard loans, as they are guaranteed by the listed financial assets.

As of January 2019, the typical interest rate on a mortgage in Spain is between 1.35% and 2.25%. Please check with us for the latest rates available.

Interest rates, loan to value and other lending criteria do vary subject to your own personal residential and financial status, mortgage offers available at the time of full mortgage application, type and value of the property, location, loan size and whether you are borrowing or acquiring in your own name or company name.

 

Required Documents

The list of documents required to apply for a mortgage shall depend on your personal circumstances, but we would be pleased to advise you prior to your visit to Spain. For an initial assessment of your application, the lenders shall need to verify your latest three tax returns (your last P60 could also be useful). If you are self-employed, they will require the last three years of your accounts with a letter from your Chartered Accountant confirming your total net income after taxes.

Mortgages are only considered on an affordability basis, which would be your total financial commitments per year, including your new Spanish mortgage payments divided by your total net income after taxes, taking as an average the last three years. This ratio should be below 35%. Potential rental income from the Spanish property may only be considered as complementary to your main one, as long it is duly evidenced with rental’s latest tax returns and bank statements.

Properties that are under development can be financed at the different construction stages, up to 70% of the construction costs. You should own the land outright, have a planning permission in place and the construction project should be validated by the local College of Architects. Land is normally not financed, but there are some exceptions where lenders finance up to 50% loan to value, based on your financial profile, an only urban land with planning permission shall be considered.

Please see below an estimated monthly repayment for a €100,000 mortgage:

 

Interest rate

Estimated monthly payment, capital & interest, for a 15 years mortgage

Estimated monthly payment, capital & interest, for a 25 years mortgage

1,35 %

614.01 Euro

392.93 Euro

2,25 %

655.08 Euro

436.13 Euro

 

Mortgage setup costs

You should estimate that the overall mortgage completion cost (lender’s arrangement fees, appraisal, notary, land registry, etc.) is to be approximately 1.53% of the mortgage amount if it is more than €1,000,000. Higher mortgage amounts shall have lower completion costs.

 

The process

These would normally be the different stages for completing your Spanish mortgage application:

  1. We receive all the requested documentation to start your mortgage application.
  2. We provide you with an indicative “acceptance in principle”
  3. On your acceptance, we sign a broker contract
  4. We shall instruct the lender to open a bank account on your behalf, where you can transfer the valuation provision.
  5. Once funds are transferred, the lender shall instruct the property’s valuation.
  6. Once the lender receives the valuation report and it has done their legal due diligence, the lender shall issue a firm mortgage offer called ESIS (European Standardised Information Sheet) for your final acceptance.
  7. A completion date between all the parties is set, so the bank and notary can prepare the documentation for completion.
  8. Property purchase and mortgage deeds are signed at the notary

 

Please do not hesitate to contact us if you require any additional information.

  

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