A few points to consider when you making a decision on how to finance your Spanish property purchase by either financing from the UK or Spain.

Please remember that dependent on your wealth, inheritance tax here in Spain has to be paid on 1st death and can be very high for non-residents, up to 80%. The average is 50 - 60%. We can discuss how you could mitigate this. It is much easier to finance a purchase with a mortgage in Spain rather than trying to get a re-mortgage/equity release at a later date.

This is due to the fact that you have to justify why you want to raise funds. Spanish banks do not like you raising equity to take out of Spain.

The consequence of this is if you needed funds in the form of a mortgage and you couldn't do this in the UK, it is harder to release funds from your property here in Spain. Interest rates are lower here.

The Euro base rate is currently 4% compared to the UK where it is 5.75%. Although the costs of getting a mortgage are higher in Spain, it will be cheaper here in the long run because of the lower interest rates. If you only want short-term finance e.g. for 2 years or less, then it might be wise to consider getting the mortgage in the UK. It really does depend on what your plans are for the property.

If you are thinking of raising the funds against your home in the UK rather than your asset here in Spain, please be aware that if anything happens and you could not pay the monthly payments, your own family home could be at risk but you would have a mortgage free property in Spain.

At this moment in time a Spanish mortgage does not affect your credit rating in the UK. This means that you will have more freedom when it comes to obtaining credit at home.

Our advice is to seriously consider the advantages of having a Spanish mortgage on a Spanish property

Raising Finance in Spain

Loan to Values

Standard loan to values can be up to 80% (typical 70%) for non-resident mortgages in Spain and are always linked to the valuation of the property in Spain, not the purchase price.

Most Spanish mortgages whilst linked to a percentage of valuation cannot exceed the price declared on the Escritura (title deeds).

Spanish Mortgage Product Ranges

Finance in Spain is predominately linked to a variable rate and on a repayment basis. Spanish variable rate products are generally linked to the yearly euribor (European inter bank offered rate) and your interest rate will be reviewed yearly. Your interest rate for the first 12 months is determined by the euribor at the month of completion plus the fixed margin above that which your selected Spanish bank is charging. Some offshore banks can provide mortgages in sterling secured against your Spanish property purchase, linked to the Bank of England base rate.

There is growing access through banks in Spain to Interest only terms and fixed rates. Fixed rates unlike the UK tend to be slightly higher than the prevailing variable rate.

The interest rate charged increases with the amount you need to borrow. Loans up to 60% of the value of your property attract the best rates. Between 60% and 70% are still however loans over 70% of the value have the highest charges.

All Spanish lenders charge an arrangement fee for new loans. These vary from 1% to 2%, again dependant on your circumstances. Typically you should budget for a fee of 1.5%

Equity Release and Re-mortgaging in Spain

Releasing equity and re-mortgaging is available through select lenders in Spain. Because of the legal process of securing a loan in Spain it is more difficult and costly to make any changes to your Spanish mortgage post completion. Raising funds against an unencumbered Spanish property, releasing further funds or changing the terms is controlled by the Bank of Spain and further tax; bank and notary costs will apply. In Spain under the current legislation it is advisable to raise the maximum funding you require for your current and future needs. Lender, product and rates need to be carefully selected to ensure they are the most suitable for your needs. Lender and product hopping, which is now standard practice in the UK, is not advisable in Spain without careful planning and advice.

Term

Spanish mortgage terms range from 5 to 40 years and are dependent on age and the Spanish finance provider selected. Most Spanish banks will expect the mortgage to be repaid by age 70 but it is possible to obtain a mortgage in Spain up to age 80.

Costs

All Spanish banks charge an arrangement fee for dealing with your mortgage in Spain. Spanish bank opening fees are payable at completion. All other costs in relation to the Spanish mortgage deed including mortgage tax, registry costs and some of the purchase deed costs are deducted from your gross mortgage advance. It is not possible to add your costs to the Spanish mortgage unless your valuation level allows you to. It is important to check you have accurately assessed and accounted for all expenses to ensure you are not left short of funds for completion day. We would suggest you allow at least 12% of the purchase price to cover your purchase and finance costs in Spain in full and that you make sure you are made fully aware of the provision of costs for completion by your lawyer.

Currency

If you take a Spanish mortgage with a mainland Spanish bank the capital provided and repayments will be in Euros. Offshore lenders can also take security over your Spanish property and many will provide the funds and take repayments in any major currency of your choice. Your interest rate will be linked to the base rate of the currency you select. For most Euro mortgages this will be the yearly euribor.

Underwriting Criteria

It is unwise to allow yourself to be talked into submitting false documentation and you should avoid brokers who offer this service. A fraudulent application could put your Spanish property and your deposits at risk if found to be so at a later date. Most Spanish banks will assess your income net of tax and will want to see that the combined existing UK and new Spanish monthly liabilities do not exceed 1/3rd of your proven monthly net income. It is possible with some banks to extend this ratio to 45% of net income and each bank in Spain will underwrite in a slightly different manner. In general Spanish banks will not take in to account any projected rental income from your Spanish property when assessing your application. There are no specific "buy to let" products currently available.

Benefits of Raising Finance in Spain

Low interest rates and protection of your UK assets can be some of the key benefits of borrowing in Spain. All alternatives should however be understood and considered before making a final decision.

Non Resident Spanish Mortgages

Spanish mortgage up to 80% loan to value with up to 10 years interest only

Spanish mortgage with first 15 years interest only

Spanish flexible mortgage plan including offset and credit line facility up to 70% loan to value includes up to 10 years interest only facility

Self-certification mortgage in Spain up to 65% loan to value for purchase & equity release

Interest only for 30 years

Offshore company held asset mortgages up to 70% loan to value for loans above € 500.000 including capital repayment holiday by negotiation

Equity release with up to 500,000 Euros cash out

Equity release or re-mortgage in Spain up to 75% loan to value on a repayment basis up to 80% including interest only facility

Spanish Commercial lending up to 60% loan to value

Spanish Construction mortgages up to 70% of value of completed project

Land mortgages for plots in Spain up to 60% of value

Bridging finance by negotiation secured against UK or Spanish property

Spanish Resident Only

Full finance and costs packages available from banks in Spain

Up to 120% loan to value

Interest only and flexible mortgage plans up to 70% loan to value Fixed payment mortgages

Low start mortgages

Many of these products are not available direct from the banks in Spain and will be subject to the lenders criteria and your status. Rates and costs available in writing on request for all Spanish mortgages.

Standard Non-resident Documents Requirements for Spanish Mortgages

Resident Document Requirments

Below is a list questions we would always advise you ask your lawyer in Spain to confirm and check when appointing them to represent you for the purposes of buying property in Spain:

Is the full square meterage of my Spanish purchase fully and legally registered?

Is the land it sits on registered as rustic or urbanised and what are the possible implications of buying on rustic land?

What costs including the standard legal and tax costs will I have to account for (instruct them to follow Spanish law in relation to IBI, Plus Valia and any existing Spanish mortgage redemption costs as these should be paid by the vendor not you)

Are building licences and first licences of occupancy in place?

Is the 10-year building warranty in place? (for properties less than 10 years old)

Am I buying direct or is my purchase a cessation of contract. If so what are the implications for me?

Will this purchase have any under declaration? (Request your lawyer to negotiate the minimum possible as to do so is in your best long term interest)

What capital gains, inheritance, income and wealth taxes will I become responsible for?

What deposits do I have to pay and at what point do they become nonrefundable?

What will you charge me and what other disbursement costs will be payable?

Is your firm working solely on my behalf as the buyer? (Lawyers are not restricted in Spain to only work on behalf of either the vendor or the buyer)