Do you need a mortgage
Andaluciavastgoed mainly works with local Spanish banks/mortgage providers.
Unfortunately, Spain does not offer the wide variety of different types of mortgages that we are used to in Belgium or the Netherlands.
It is also important to know that the lending criteria used by banks have become stricter since the global crisis on the mortgage market. Where people used to be able to borrow 80% of the assessed property value, nowadays banks will only lend 65% or 70% of the assessed property value!
Types of mortgage
Basically banks offer three different types of mortgage:
- Repayment mortgage: With this type of mortgage you pay a fixed sum, the repayment sum, to the mortgage provider. In the first years, most of your mortgage payments go towards paying the interest. Over time you are paying off an increasing amount of capital each month. You make fixed monthly payments and you will own the property outright at the end of the mortgage term.
- Interest-only mortgage: With an interest-only mortgage, you only pay interest each month. You don’t pay off any off the capital during the mortgage term. Interest-free only mortgages are often used for investment properties. The big advantage is lower monthly payments.
- Mixed mortgage: A repayment mortgage with an interest-only period of between 1-5 years. This is a good option if you want to keep costs down at first. You can use the money you save for renovation work, for example.
Spanish banks do not offer 100% LTV loans to foreigners.
At the moment, the maximum you can borrow is 65% to 70% of the assessed property value.
You should add another 13% -15% purchasing costs on top of the purchasing price:
8% transfer tax, +/- 0,25% notary costs and +/-0,15% registration costs, 1-2% of the purchase price declared in the deed of sale for financing costs; ;1% of the purchase price declared in the deed of sale for attorney’s costs as well as dossier fees for the mortgage. Therefore, you should make sure you have got your own funds before you buy a property in Spain.
The usual mortgage term for repayment mortgages is 30 (sometimes 40) years. This makes the Spanish banks more flexible than their counterparts in Northern-Europe where the usual term is 20-25 years.
However, the banks do have a maximum age when people can apply for a mortgage, which varies from 70 to 75 years.
Interest rates in Spain are based on the Euribor percentage as standard.
This is an interest rate that is used by a lot of European banks. In order to limit the risks of fluctuating interest rates, it is possible to fix the interest rate for your Spanish mortgage for a specific period. Each bank also adds its own interest rate to the Euribor rate!
Property valuation or assessment
Valuation of the property by an independent valuer, appointed by the bank, is one of the requirements. This valuation will come to one of three conclusions:
- The estimated value of the property is equal to the sales price:
2. The estimated value of the property is less than the sales price (= this is often the case with property in the campo).
3. The estimated value of the property is higher than the sales price.
You need to make your own calculations with regard to financing of the property and your own funds. Banks will loan foreigners up to 70% of the estimated property value. You need to allow for another 13-15% in purchasing costs on top of the sales price.
An example: If the sales price of a property is €300,000 and the bank’s valuation is e.g. €280,000 you will need to find the following amount yourself:
280.000€ x 70%
= 196.000€ this is the borrowed amount
300.000€ x 13%
= 39.000€ purchasing costs
Own funding : 339.000€ – 196.000€
* The higher the valuation, the less you have to finance yourself.
What income criteria do banks use?
The income criterion is generally 35% (for some banks its 40%) of net income. This means that you can spend a maximum of 35-40% of your net income on housing costs. For this reason it is extremely important to have an income in your country of origin when applying for a mortgage in Spain!
Interest rate (Euribor)
To make your own calculations, you have to fill in the current interest rate.
The majority of banks base the interest rate on the Euribor. Euribor stands for Euro InterBank Offered Rate.
As a guideline you take the most recent date and the costs for 12 months. The type of mortgage will determine whether this interest rate can go up or not. A repayment mortgage is usually more expensive as you are only paying interest in the first few years and no capital.
You can find more information about current interest rates on: http://nl.euribor-rates.eu/