Unless you already have the savings or are planning to release equity from your home in the UK to buy your property in Spain, there is a good chance that you will need to secure a mortgage to finance your purchase.
If you are serious about purchasing property in Spain and require finance, you should start arranging your Spanish mortgage almost before you do anything else to enable you to proceed with confidence in the knowledge that you have secured the finance necessary to buy a new home.
Forward planning at the start will also give you a better idea of how much you can spend on your Spanish property and the likely future financial implications of your purchase. Leaving the financial side of your Spanish property purchase until the end will potentially leave you in a weaker position, especially if you have to raise finance in a rush, which may mean that you end up being unable to secure the best possible mortgage at the most attractive borrowing rate.
Economic conditions in Spain have been improving over the last few years and house prices are increasing in many areas, especially in the cities and popular coastal towns. There were several Spanish banks lending to nonresidents throughout the financial crisis and other lenders that had withdrawn from the market have gradually started lending again. Competition between the lenders has led to a dramatic improvement in interest rates for non-resident mortgages, which has made borrowing a lot more attractive. “Conditions for buying in Spain have been excellent for the last couple of years. Low property prices, low interest rates on mortgages and a weakening of the Euro has led to increased numbers of UK buyers. The political problems in Greece and Turkey have also made Spain look a safer option, which helps boost tourist numbers.
For a Spanish mortgage, you will generally need a minimum deposit of 30% of the property’s purchase price, with borrowing rates currently starting around 2% (lower for premium clients).
“The maximum mortgage for non-residents is 70% of the purchase price or valuation, usually depending on which is lower. In most cases, better terms are offered where the mortgage is less than 70%,” adds Monger.
With banks in Spain now adopting greater caution following the Spanish property crash, interest-only deals are no longer available.
For many years, the fixed rate mortgages offered by banks in Spain were not attractive and the vast majority of mortgages signed were with a variable interest rate. In 2016, this has all changed and it is possible to find low fixed rate mortgages over terms of up to 25 years, but typically a maximum of
20 years. A variable rate generally means that your mortgage payments can go up or down according to movements in interest rates usually as a set percentage, as opposed to a fixed-rate mortgage which guarantees your mortgage payment each month over a set period.
Monger continues: “For the first time in many years, we are now able to offer a choice between a low variable and low fixed rate and many clients are now opting for a fixed rate. We are able to offer variable rates as low as annual Euribor + 1.3% or fixed rates as low as 2.3% over 10 years to premium clients on terms that are not available directly through bank branches.”
Whether you opt for a variable-rate or fixed rate mortgage you will normally have to pay an early repayment charge if you want to pay off your mortgage sooner or remortgage to a new deal. But redemption penalties are low in Spain – typically 0.5% in the first five years of the loan for full or partial redemption and 0.25% thereafter. Redemption penalties for fixed rates are generally higher although Monger adds that Mortgage Direct can offer the same redemption penalties for fixed-rate mortgages as for those with a variable rate.
It is also worth noting that home and life insurance is usually compulsory for all people looking to secure a Spanish mortgage, although some brokers can arrange mortgages where this is not the case, adds Monger.
It is a totally different ball game if you are planning to purchase a repossessed property from the bank, with some lenders willing to offer 100% loan-to-value (LTV) mortgages and more in a desperate bid to offload high levels of repossessed stock on their books.
Your property in Spain is at risk if you do not keep up repayments on a mortgage secured on it. Be sure you understand the repayments and can afford them before entering into any credit agreement.