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Finance & Mortgages
BACKGROUND
Immediately following the onslaught of the credit crunch in 2007, the banks here in Spain became very reluctant to lend money. From the heady days of the property boom in which Spanish banks would be happy to offer massive mortgages to anyone who could produce a P45 (even if it proved to be fake!), all of a sudden everyone seemed to realise what had been happening. Where once the banks would assume that the value of a property would rise by 20% per annum, now they couldn´t be so sure. In fact the banks became so scared of exposing themselves to further bad debt that unless a buyer could present a squeaky-clean credit history and a 50% deposit, access to Spanish mortgages was strictly off-limits.
CURRENT SITUATION
Thankfully, the Spanish mortgage market has since eased, and most banks now have lending targets that they try to meet in each branch. However, whereas in the past the paperwork would often be overlooked, now buyers need to produce all the necessary documents such as payslips or company accounts, P60, bank statements, details of existing laibilities, and a credit check.
Most Spanish banks are able to lend up to 60% - 70% of the valuation of a property to non-residents. They don´t like going any higher than 70% because they simply don´t want to over-expose themselves to the potential for further losses. If the valuation comes back to the bank as being higher than the purchase price, then the latter figure will normally be the one that the bank will use to base their lending. Gone are the days of gearing up the finance on the back of an inflated valuation I´m afraid!
INTEREST-ONLY MORTGAGES
For those buyers seeking an interest only mortgage in Spain, these are now hard to find. Most bank personnel along the costas simply don´t understand the notion of only paying the interest on a mortgage. Occasionally, they may offer a limited period of a carencia (which amounts to the same thing), but normally they will need a very good reason to do so, and usually this type of product would only be made available to residents. The banks flirted with interest-only products before the credit crunch kicked in, but overseas buyers will need to accept that their Spanish mortgage will be a very straight-forward capital and interest repayment product.
MORTGAGE TERM
Mortgages in Spain are normally available for up to 30 years with the maximum age for an applicant at completion of the mortgage term being 70.
INTEREST RATES
Interest rates have been historically low here in Spain for some time, and most mortgage products will attract an interest rate of between 1% and 1.5% above the 12 month Euribor.
FEES & TAXES
Set-up fees and taxes for Spanish mortgages can be fairly hefty, and can add an additional 2%-3% of the purchase price of the property to the overall costs.
100% MORTGAGES
Having said all of this, there are also opportunities to secure up to a 100% mortgage in Spain, but normally only when buying a property owned directly by a bank. For those who don´t want to use any of their hard-earned cash, this can be ideal. BUT, please bear in mind that the properties in question have normally either been re-possessed by the bank or form part of a development that the bank has been financing. In either scenario, chances are that with the help of an experienced real estate agent, you will be able to find properties within the same (or neighbouring) developments for substantially less than you would be paying. The downside of course is that you would only be able to borrow up to 70% of the purchase price in the case of finding an alternative.
