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Mortgage Advice for British Expats in Spain

April 06, 2021

The importance of speaking to a mortgage broker that has access to the best mortgage deals in Spain and can provide you with solid mortgage advice to secure you a mortgage in Spain.


Are you looking at houses for sale in Spain and wondering whether you can obtain a first time buyer mortgage or perhaps a buy to let mortgage? Whatever your requirements the first step is to speak to a trusted mortgage broker, preferably a British national, that speaks your language and understands your culture.


The good news is, that even after Brexit, Spanish banks are keen to lend to foreign buyers and offer good mortgage interest rates. The context to do so is now much safer than it was during the boom days back in 2008 as in 2019 Spain implemented the EU mortgage directive in the form of the Spanish Mortgage Law or LCCI (Ley de Contratos de Creditos Inmobiliarios) which sets out the legal framework whereby lenders can lend to buyers. Part of the new law now obliges anyone who is advising you on mortgage lending must now be properly qualified including your mortgage broker. So be careful who you choose to give you mortgage advice!


Cheaper application costs, very low mortgage rates and increasing choice make conditions for buying with a Spanish mortgage very attractive.

The new Mortgage Law now obliges the banks and not the borrower to pick up the key costs associated with a mortgage in Spain, namely land registration costs, notary costs etc. Added to this, the European Central Bank’s Euribor rate, which Spanish mortgage rates are pegged to, is still negative and has been since 2016 making interest rates extremely attractive.
Generally banks are shifting their stance back in favour of non-resident buyers, with more re-entering the market and offering competitive products for the right clients. As long as your affordability stands up to their criteria, they are keen to lend to you.

General consensus advises foreign buyers in Spain to use an independent mortgage broker. Lenders are increasing in numbers but finding the most responsive lender, the right contact within the bank and navigating the application process is still best done through an expert, who is fully qualified, fluent in Spanish and also someone who understands the nuances of Spanish lending.

The mortgage system is completely different to the UK and not all Spanish banks work in the same way. It is all about having the right contact person within each bank, someone who understands how things are done outside of Spain. For example – reading tax returns, understanding credit reports and how company directors tend to pay themselves salary plus dividends.


Typically, the agreements brokers have with banks will be exclusive or at least as competitive as anything else on the open market. They will also be valid for a property purchase anywhere on the Spanish mainland and the Spanish Balearic and Canary Islands.


So how does the process of obtaining a mortgage in Spain works?

For serious buyers, the application process starts even before arrival in Spain. It is wise to arrange your finance well in advance – understand how much cash is required for the purchase and what the affordability criteria is in Spain. The Spanish banks don’t use salary multiples to calculate affordability for example. Instead, they look at each client’s individual debt to income ratio. A full mortgage approval can be arranged for you before you actually find your dream property and this is advisable to arrange in advance as it will put you in a strong position for when you are able to visit, find the property of your dreams and want to put in an offer.


Maximum LTV for non-resident clients is 70%, although many banks have reduced this to 60% for non-European clients, which now includes the Brits post Brexit. However, it all depends on how strong your economic profile is. If your personal finance looks good then they are happy to go to the max LTV.


It is important to point out that neither interest only nor buy to let mortgages exist in Spain, so the banks will not take into account any future rental income on the property that you buy. Affordability depends purely on your personal declared income. Buying costs can be up to 13% including taxes, legal fees, bank arrangement fees etc and these cannot be added onto the mortgage amount. Buyers must budget to have these fees in cash. Term for the mortgage is usually up to the age of 70 with a maximum of 20 years.


Once we have a mortgage approval for our buyers, the next stage is to do a valuation on the property, which is a requirement of the lender. It also gives an extra layer of security for the purchaser as the bank will want to check that all licenses are in place and legalities met. Buyers can choose to allow a valuer chosen by the bank to do the valuation or they can choose their own valuer to visit the property and do their report. As long as the valuer is regulated by the Bank of Spain, the Spanish regulator, will enable banks to accept an independent valuation.


Once the valuation is done and accepted by the bank, they will then issue a binding offer to the client and completion can take place after the stipulated ten day cooling off period has passed. During the ten days cooling off the borrower (or his Spanish lawyer via POA) must by law visit their chosen notary to be assessed as to the appropriateness of the chosen mortgage product and to make sure the borrower has fully understood the mortgage contract that they will be entering into. This is a good example of how as a direct result of the new Spanish Mortgage laws, the regulator in Spain is dedicated to protecting borrowers and ensuring that they have a cull understanding of their chosen mortgage product. Completion can take place after the cooling off period and the borrower can either attend in person or, as frequently happens, their Spanish lawyer can complete on their behalf via POA. In total, if everything goes smoothly the process can take as little as 6 to 8 weeks from start to finish.


Early Redemption Penalties are also covered in the new Mortgage Law and on variable rate mortgages these are either 0.25% of the amount redeemed during the first three years of the mortgage or 0.15% during the first five years and thereafter 0. Those clients who are thinking of paying off early have a good deal of flexibility to do so. In fact, there are many would-be cash buyers who are borrowing instead in order to make the most of very low interest rates and also to hedge against a weak pound by borrowing in euros with a view to paying off their mortgage in the future when the exchange rate has moved back in their favour.


Mortgage Advice for British Expats in Spain Considering Buying Off Plan in Spain


Banks will lend to off-plan buyers once construction on the property is complete and the licenses are in place. The deposit and stage payments need to be funded by the buyer from their own funds. Again, it is a good idea to be assessed in advance for a Spanish mortgage even before the property is finished. You can receive an approval early on and as long your financial circumstances haven’t changed then it is usually fairly straight forward to renew the offer in readiness for completion on the property.


The costs


Borrowers need to budget for the costs associated with the purchase and in particular the taxes payable which vary according to the type of property you are purchasing (new build or second hand) and also to the region of Spain where you are buying. Spain is made up of 17 autonomous regions, each with its own tax regime and so important to find out about these in advance. If you are buying a home for the first time in a foreign country it makes sense you speak to a mortgage adviser that can advise you of all the associated costs of purchasing your dream home.


Other costs that need to be budgeted for are notary, land registry and legal costs associated with the purchase. (Remember that those associated with the mortgage are payable by the lender.) The borrower must also budget for the cost of the valuation and the bank arrangement fee. Bank accounts must be opened with the Spanish bank that does the lending as they will automatically debit your account with the mortgage payments on a monthly basis and most clients use their mortgage bank as their main Spanish bank account and domicile utility bills – water, electricity and community fees etc – in the same account, so best to wait until you know which bank is going to be your mortgage provider before opening a Spanish bank account.


The future’s bright

Spain is still a favourite on a global basis for buyers looking for a second home in a fantastic climate in a safe environment and Spain’s mortgage market is extremely favourable to foreign buyers of all nationalities that are looking at properties for sale in Spain. Please don’t hesitate to ask us for more information.


Mortgage Matters Spain was set up with a view to providing mainly non-resident clients the best professional advice using the unique mortgage packages that have been agreed with all of the main Spanish lenders.

Alison Lowther de Cotta, who heads up MMSp, has aimed to create an independent mortgage consultancy which offers a bespoke whole-of-market financial solution to help you to purchase your dream home anywhere in Spain and the Spanish islands. She has specialised in the Spanish mortgage market since 2015 and having seen the need for a hands on approach to assisting client’s with their finance, she set up MMSp at the end of 2018.  Alison is a fully qualified UK mortgage advisor (CeMAP) and is also qualified Spanish mortgage intermediary (ICI). She spent 20 years in International Private Banking working for Credit Suisse, Banco Santander amongst others and is fluent in English, Spanish and French. Her experience in Private Banking allows her to offer a very personalized service to her clients at all stages of the buying process right the way through until they receive their keys at completion.


www.mortgagemattersspain.com | alison.decotta@mortgagemattersspain.com | 00 34 951 120 072 / 00 34 662 351 056 (MOB)