Buyers Guide ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

Financing a property in Spain

Now that Spain is in the 'euro zone' and Britain is not you should bear in mind that if the Euro increases in value against sterling then a UK purchaser may have to make higher mortgage repayments on a monthly, or, preferably, quarterly basis: however the value of the property in sterling will also have increased. Similarly, if the value drops, then payments are reduced, as is the value of the property and the loan.

Although a mortgage (hipoteca) in Euros on a Spanish property provides better security against fluctuations in currency values, the fluctuation in interest may serve to counteract this advantage. One of the main aspects of Spanish-based mortgages in the recent past is interest rates can be higher. Sometimes a fixed UK mortgage will be a better bet, and will usually be quite easy to organize. There are a number of UK building societies who are able to arrange both euro and sterling based mortgages.

Spanish Mortgages

There are many Spanish banks that will offer Euro mortgages within Spain or through branch offices in the UK. However, the terms and conditions of Spanish mortgages are different from those in the UK. A deposit of at least 30% is usually required with a maximum of 70% of the property value being provided as a loan, unlike the 95% or even 100% available from British banks. The payment term also is shorter, ranging from 10 to 20 years, and can not run beyond a maximum age of 70 years at the final payment. Non-residents usually have a lower limit of borrowing of 50% to 70% imposed and the mortgage repayment period also tends to be shorter, the norm being fifteen years. The method used to assess your mortgage is also different from that in the UK. Basically, you will have to put all your UK and Spanish earnings and income forward; and get references from your UK bank. Any other borrowings will be assessed. Although repayment mortgages still predominate, there are endowment and pension-linked options as well. The arrangement fee is usually around 1%. Interest rates and any change in them could be a disadvantage, even though you have escaped most of the risks associated with exchange rate fluctuations (at least if your move is permanent). And you will find that the cheaper interest rates and special deals on offer usually only apply to more highly valued properties of between £100,00 and £250,000; and not to the more modest end of the property market.

UK Mortgages

Sometimes a fixed rate UK mortgage is a better option and there is the added advantage of being easy to arrange. This effectively makes you a cash buyer when you come to buy your home in Spain. You will either re-mortgage or take out a second mortgage out on your UK property. Alternatively, it is now also possible to approach various UK based banks for a sterling loan secured on the Spanish house. If you are considering borrowing in the UK, then the method of calculating the amount that may be borrowed is worked out at between two and a half to three and a half times your primary income, plus any secondary income, less any capital amount already borrowed on the mortgage. Sometimes two and a half or three times joint income, less outstanding capital, is possible.

Naturally the mortgage would be subject to a valuation on any UK property and you could expect to borrow, subject to equity, up to a maximum of 100% of the purchase price of the overseas property. A second charge, or a new first charge would be taken by the lender. Some lending institutions charge a higher rate for a loan to cover a second property. A final word of warning is that you should ensure that if a loan is arranged in the UK then all the details of this are included in the Spanish property contract (escritura).

Mortgage Comparisons

Various Types	UK Mortgages: Repayment, endowment or pension Mortgages.	Spanish Mortgages: Mainly repayment.
Maximum percentage available	Up to 100% on either re-mortgage or 2nd charge usually secured on UK residence.	80% of Spanish property value.
Income Multiplier	2_ x joint income or 3_   x 1 income.	40% of disposable income.
Mortgage Term	5 to 25 years.	5 years to maximum of 35 years maximum to age 70.
Interest Rate.	fixed, discounted, variable or capped. 6%	2.5% to 4% .
Repayments made	Monthly.	Monthly or quarterly.

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