Throughout the whole of Europe Spain offers some of the best mortgage rates for both national and international buyers. But why then is not everyone purchasing property in Spain? As with any process the sheer amount of paperwork needed to apply for a mortgage can be daunting. But that is why we are here. In this article we are going to cover the basics of Spanish mortgages, what you need and what you need to do to help get you the house of your dreams on this sunny iberian peninsula.
When thinking about purchasing a property in another country you might think that you are not entitled to applying for a mortgage, but this is not the case for Spain. In Spain both residents and non-residents can apply for a mortgage, however your residency status will affect how much you are able to borrow from a Spanish bank.
A mortgage in Spain is based both on your income and on other debts that you may have. Although Spanish mortgages do tend to favour Spanish residents in Loan-to-value (LTV) and interest rates, the country still offers a great opportunity for those who don’t live there who are looking to buy. Residents of Spain can normally borrow up to 80% of the property’s assessed value and pay an interest rate of 1.5%, whereas non-residents can normally borrow between 50-70% and pay between 2 and 2.5% interest.
Whether you are looking to purchase a primary residence or a vacation home in Spain you can rest assured that you are making a great investment. In the whole of Europe, Spain is one of the countries that offer the best mortgage rates. Not only this but in Spain there is a lower rate of overvaluation when compared with the rest of Europe. This means that investing your money in a property in Spain is a far less risky move. Current mortgage rates in Spain average at 2.25% for a variable mortgage and 2% for a fixed one.
Since the pandemic property prices in Spain have seen a rise of 4.2% - which varies from city to city, with Madrid and Barcelona being the most expensive cities.
When purchasing a property in Spain the first thing that you will need is a Spanish NIE, which is the tax ID assigned to you as a foreigner by the Spanish government. You need this for every legal document that you do during the purchase of a property in Spain. Alongside a NIE you will need to also present the following documents:
Proof of employment or income
Details of current debts and existing mortgages
Copies of your existing property deeds (both in Spain and outside)
Records of you current assets
and, in the case that you have them, any prenuptial agreements that you have in place
Valid ID’s of all of the applicants
Your latest income tax return
Records of your account movements during the last 3-6 months.
In the case that you are self-employed you will need all of the listed above plus your quarterly income tax returns and the quarterly VAT returns.
Once you have submitted the documents needed for a mortgage, the bank then proceeds to process everything and to make your mortgage offer for you. However, the bank's offer might not always be the best one for you, so it is recommended that you shop around first and present any better offer that you may find to the bank. Once you have put in the offer you will need to sign a contract in front of a notary. In the case that you cannot go, a lawyer can go in your place to represent you. Once the documents are in order, then the deed for the property is ready to be presented for tax purposes. Whilst it is not obligatory that you do so to get a mortgage in Spain, it is recommended that you open a Spanish bank account to facilitate payments.
For non-residents of Spain the time that they can spend in the country can vary. Non-EU member country residents can stay for up to 90 days per 180 day period. Since Brexit was put in place, this limit also applies to British citizens. A popular program for non-EU citizens to become a resident in Spain is the Golden Visa program. The Golden Visa program allows non-eu citizens to become Spanish residents via a real estate investment of 500,000 euros, with the one clause that this must be self financed in order to qualify for this program.
In Spain there are several different types of mortgages, with the main ones being fixed and variable. A fixed mortgage ensures that you know how much you are going to pay per month offering a less risky way to purchase a property. Not only this but it also protects you from future changes in interest rates, this also means that when interest rates are lower you will be paying more.
The other type of mortgage that is common in Spain is the variable type. A variable mortgage offers a constantly changing interest rate which is based on the Euro Interbank Offered Rate (Euribor.) The downside to this type is that you never know the exact amount that you will be paying each month.
A final type of mortgage that is less commonly offered in Spain is that of a mixed mortgage. In this case for the first five years of the mortgage you normally pay at a fixed interest rate and then change to a variable rate after this.
However, if you are looking to get a mortgage in order to purchase a commercial property then you would be able to receive up to 50% of the funds needed to purchase the property. In order to get a mortgage to purchase a commercial property you will need to provide all of the documentation related to your business such as business plans and accounts.
In the case that you are looking to buy land and build in Spain then you can also get a mortgage for construction. The amount that you will be able to borrow here depends on both the building plans and your personal circumstances. For non-residents you normally are able to borrow anywhere from 50% to 70% of the land price and construction costs combined, whereas residents can normally borrow up to 80% of this. It must be taken into account that with this type of mortgage the interest rates are normally higher than those of a mortgage for an already constructed property.
When it comes to getting a mortgage in Spain you will normally need to have at least 30% of the property value ready to put down as a deposit. The bank will normally allow you to borrow up to 70% of the property's value, sometimes allowing residents to borrow more than this amount. However, in cases where the property being purchased as a second home, you might not be able to borrow this much.
The property tax in Spain, los impuestos sobre bienes inmuebles (IBI), is set by the local authority and tends to vary from province to province. As long as you are the owner of the property on January 1st, you will need to pay this tax. Also if you chose to rent out the property whilst you are not there, then you will need to pay income tax on the money earned from this.
You will also need to pay taxes when you sell the property, in Spanish this is the Impuesto Transmisiones Patrimoniales (IPT), alongside this, you will also need to pay tax on the profit made from the sale. The amount of tax that needs to be paid is based on the following:
For the first 6,000 euros you will need to pay 19%.
For between 6,000 and 50,000 euros you will need to pay 21%
For between 50,000 and 200,000 euros you will need to pay 23%
And all non-residents have to pay 19%.
However, exceptions can be made here if you decide to purchase another Spanish property after selling one.
The repayments on a Spanish mortgage are normally paid monthly. Although the payment shows as one individual payment, it can be broken down into two parts: capital repayment and interest payment.
Whilst applying for a mortgage in Spain can seem daunting at first, the pros far outweigh the cons. If you are looking to purchase a property in Spain but are still unclear about the mortgage process, don’t hesitate to contact us here at Orangestate. With our years of experience, we can help guide you through the process of getting a mortgage in Spain and help you find the property of your dreams in no time at all.
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