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Information on Mortgages in Spain
The percentage of the property cost that is mortgaged is known as the Loan-to-Value (LTV) percentage. It’s based on the lower of valuation or purchase price. For non-residents (who don’t pay tax in Spain) the maximum LTV is 60-70%% but depends on property price and financial profile of the buyer. For fiscal taxpayers the maximum is 80%.
In terms of what you can borrow, the banks consider your Debt-to-Income ratio (DTI). They will require that approximately one-third of your net monthly income covers your existing debts including any rent you might pay plus the new Spanish mortgage.
Fees and taxes relating to the property purchase and the mortgage set-up are generally 9-13% of the property price, depending on the region of Spain. The buyer generally must prove they have these funds before the mortgage is agreed.
It’s advisable to get a mortgage approved in principle before starting the purchase process. This will confirm the upper limit of the price range in which you search and can put you in a stronger position when negotiating the property price; the vendor will know you are serious and can move quickly
Spanish banks usually offer a mortgage rate related to the European base rate the Euribor (e.g. Euribor plus 1.5%). The percentage added to the Euribor depends on various factors, mainly the LTV, the income/debt profile of the client and the term of the mortgage. The monthly payments on a variable rate mortgage will go up or down according to movements in the Euribor. Fixed-rate mortgages are also available for the whole term, usually offered at a higher addition to the Euribor but with the certainty that repayments won’t change.
While it is possible to walk into a Spanish bank branch and apply for a mortgage, you are likely to get a better deal by applying via a licenced broker, we can arrange this for you. They will have access to better deals than are on offer in the high street and will know which banks are best suited to a buyer’s financial profile. They can help with presenting the financial documents required and are permitted to keep the buyer updated throughout the purchase process.
Your broker will advise what documents will be needed to support your application and will discuss the opening of a Spanish bank account with the proposed lender. You are advised to appoint a lawyer before signing the reservation contract and paying the deposit. You will also need to apply for an NIE number (foreigner identity number).
On the strength of the documentation provided, the selected bank will approve or decline the mortgage subject to valuation.
The proposed lender will require the property valuation to be carried out before they give the formal approval of the loan and they will usually select a company at random from their panel of independent valuers although under the new legislation, the client has the right to select their own company (approved by the Bank of Spain). The valuation fee must be made before the valuation can be instructed.
If the valuation is suitable, the bank will confirm the conditions and will then liaise with you, the agent and both lawyers to calculate the funds that must be made available in your account. Once the funds are in place, the arrangements for completion can be made.
Completion takes place at a notary office and you or your legally appointed representative must attend. After the deeds have been signed, the cheques are distributed, the keys are handed over and the mortgage process is completed.