Looking to buy property in sunny Spain and need to know more about how to get a Spanish mortgage?
The biggest surprises for non-residents are the nature of the Spanish mortgage market and the lending criteria, which are very different to what they’re used to back home.
This blog explains exactly how to get a mortgage in Spain, and also provides essential advice for navigating the local property market, straight from our reputable financial specialist brokers.
Why the Spanish mortgage market is unique
It’s more traditional
Spanish lenders analyse every detail of mortgage applications they receive, rather than offering instant decisions in principle. Plus, the process in Spain heavily leans towards in-person appointments and manual document checks, which differs from the more digitalised and streamlined structure in the UK, other parts of Europe and the USA.
Banks lend based on property value
Spanish banks lend based on property valuation by an approved surveyor, not on how much someone earns. This means that if you want to buy a property on the market for €250,000, but the bank values it at €222,000, they’ll lend based on the lower figure.
Using an experienced and independent mortgage broker will help with this, as they will be able to organise a pre-valuation to determine if there might be any issues with the property valuation before a formal one needs to be instructed and paid for.
It’s highly regulated
The 2008 financial crash hit Spain hard and encouraged Spanish banks to be much more regulated than before. This means that most lenders in the current market avoid offering riskier financial products, carry out much more thorough checks and won’t authorise mortgage lending beyond regulations.
Loan-to-value (LTV) differs between residents and non-residents
Residents can typically obtain up to 80% of a property’s purchase price, whereas non-residents typically receive a lower LTV of around 60-70%.
The Bank of Spain sets strict lending regulations for lenders
The Bank of Spain (Banco de España), Spain’s central bank, regulates banks across the country and sets the lending rules they must follow. What’s more, new mortgage regulations came into effect in Spain in 2019 to give home buyers more protection, so you can’t be rushed into financial decisions.
Spanish mortgages are tied to the Euribor rate
Variable mortgages in Spain are linked to the Euribor rate, the interest rate European banks charge each other to lend money. It’s published by the European Money Markets Institute and is heavily influenced by European Central Bank (ECB) policy. This rate doesn’t always move in the same direction as the Bank of England or US Federal Reserve rates, so it’s important to keep an eye on it.
How to get a Spanish mortgage
With the differences in the Spanish mortgage process for property purchase in mind, you can follow these steps to obtain a Spanish mortgage for yourself:
1. Speak to a Spanish mortgage broker
While it isn’t a necessity, a mortgage broker in Spain, such as Fluent Finance Abroad, provides highly valuable financial advice and services designed to make the process much simpler, saving time and disappointment.
A good quality Spanish mortgage broker should give you access to the whole of the market, regardless of commissions paid to them by the lenders. Some lenders who operate in the non-resident mortgage market don’t pay commissions to mortgage introducers, but we believe you should still have access to these lending opportunities.
Trusted and experienced mortgage brokers frequently deal with the question of how to get a Spanish mortgage, so they can provide guidance on exactly which documents you need and in what format and liaise with Spanish banks on behalf of their clients to get the best deals.
Brokers can support first-time buyers in Spain, as well as retirees interested in a lifetime mortgage to release cash from their home. They can also explain how much non-resident buyers can expect to borrow, or you can use a Spanish Mortgage Calculator tool.
2. Open a Spanish bank account
Buyers must open a bank account in Spain to make financial transactions. You’ll also need an NIE (Número de Identificación de Extranjero), the identification number every foreigner needs to buy property in Spain.
3. Have initial conversations and submit for document review
Mortgage providers demand essential documentation before the process can proceed, and investors can receive a mortgage offer for their dream property. This includes:
- Proof of income, with wage slips
- Tax returns, including the P60S and W2S
- Bank statements: providers generally want to see 6 months of personal statements and proof of funds for the deposit
- Up-to-date credit reports such as Experian, Equifax and Schufa
Full disclosure of any existing debts must also be provided.
An experienced mortgage broker can assist with this, ensuring the application process runs smoothly and that property buyers have everything needed.
4. Get an agreement in principle (AIP) and make an offer on the property
An AIP, also known as a decision in principle (DIP) or a mortgage promise, is a free document from a lender that outlines how much they may lend you. Estate agents usually request to see this as evidence that you’re a serious buyer and can actually afford the property.
With your AIP to hand, you can confidently make an offer knowing your bank is willing to support the purchase at that price level. If the seller accepts your offer, the bank issues a formal mortgage offer after a property valuation.
5. Arrange a property valuation
A bank-approved surveyor will carry out a property valuation, known in Spain as a tasación. This allows the bank to clarify what the property is actually worth. The lender will lend a percentage of the lowest figure, whether that be your offer or the tasación.
Fluent Finance Abroad have been arranging formal valuations for almost 20 years, so we have a vast choice of Bank of Spain-regulated valuers on hand to assist with this very important part of the Spanish mortgage process.
6. Select your mortgage type
The bank will present the types of mortgages they offer, and applicants can then select the one that best suits their needs. For a fuller breakdown of what type of mortgage is available in Spain before you reach this stage, it’s worth understanding the options in advance.
Fixed-rate mortgages, also known as a hipoteca fija, have monthly payments where the interest rate is consistent, meaning it won’t change during a set period. Fixed-rate mortgages are ideal for property buyers who don’t want their repayments to be subject to the Euribor rate, which may change.
A variable-rate mortgage (hipoteca variable) is a home loan with an interest rate that changes periodically, meaning your mortgage payments aren’t fixed. As mentioned earlier, it depends on the 12-month Euribor index and a fixed bank margin. Buyers can enjoy lower rates if they drop; however, they could increase, upping the interest on the loan.
There’s also a hipoteca mixta, which is a mixed-rate option that’s fixed for an initial period, then switches to variable. This enables home buyers to potentially enjoy lower interest rates after a period of stability.
7. Review the FEIN (European Standardised Information Sheet)
The FEIN document lays out all the terms of your mortgage offer clearly, so you can easily see what you’re agreeing to and compare offers between lenders fairly.
It will outline details such as the loan amount and term, interest rate and any conditions attached to the agreement. The FEIN must be issued at least 10 calendar days before you can put pen to paper, which is a legal requirement to prevent you from being rushed or pressured to sign.
During this time, get your solicitor to review it, read all your documents carefully and ask any questions you may have.
8. Attend a notary signing
Before signing, you’ll attend a free meeting with the notary, who will explain the terms of your mortgage and confirm you understand them (known as the acta de transparencia).
The final stage of the whole process is the signing of the mortgage deed in front of a notary, an official witness whose presence and signature make the transaction legally binding. Without a notary, the sale doesn’t exist in the eyes of Spanish law. Buyers will need to pay the notary fees for the purchase deed, so be sure to keep this in mind while budgeting.
Should you get a Spanish mortgage? What to watch out for
There appears to be a great deal of confusion as to whether or not Spanish banks are actually lending to foreign borrowers. The first thing to point out is that yes, Spanish banks are lending to foreign borrowers, and it is much easier than you might think. Saying that, there are only a few banks worth talking to when it comes to borrowing money, so anyone thinking of going to a Spanish bank themselves should take great care.
The things that you need to watch out for are the following:
Terms can change after you’ve committed
In our experience, some banks will say almost anything to entice you in. Once you are in, you may hear several excuses as to why it is taking so long to get a decision, or find that the terms and conditions they originally said they could offer have suddenly changed for the worse.
The problem with this is that by the time you have found out what they are actually willing to offer you, you have already put your deposit down and have a completion date to fulfil. Potential buyers have found themselves with no option but to use the mortgage offer given to them; otherwise, they could stand to lose the deposit for the house they wish to buy.
International banks might not be the best fit
Sometimes the big banks you recognise don’t give you the service that you feel you deserve, and Spain is no different.
You may be asked to pay for a valuation before your income is approved
Some banks will ask you to pay for a valuation of the property before underwriting has approved your income documents.
We believe it would make more sense to get the income documentation verified by the risk department first and then send the surveyor to assess the property. This is why we arrange a pre-valuation and review your documents before a formal valuation is instructed.
Be careful of extra products linked to your mortgage
Banks can require you to take out home insurance and, in some cases, a policy covering the loan, and many will offer a lower interest rate if you also take out products, such as life insurance, a pension plan or a credit card.
However, you have the right to use an alternative insurance policy with equivalent cover, and the bank cannot worsen your loan terms or charge you for reviewing it. Always weigh up the cost of any extra products against the rate discount you’re being offered.
Make sure you are aware of the costs of setting up a Spanish mortgage
If you are considering using a Spanish mortgage to help you buy a home here, then you will have to factor in the costs of setting up the mortgage. Since 2019, the bank pays the notary, land registry and gestoría fees and the stamp duty (AJD) for the mortgage deed.
You’ll pay for the property valuation, an opening commission if the bank charges one, and any copy of the mortgage deed you request. These are on top of the taxes and fees for buying the property itself.
Don’t expect to get advice from a Spanish bank
They will only offer you what products they have, so they cannot give you advice on which Spanish mortgage products are best for your requirements. Bank employees are very limited when trying to recommend the best advice to potential clients.
Ask the right questions before you sign
Borrowers in Spain are much better protected than they used to be, thanks to the FEIN, the 10 days before signing and the meeting with the notary. However, once you have signed the contract, you will find it very difficult to get out of it at a later date, and you will probably have to employ a Spanish lawyer, which could be very costly.
If you are considering taking a Spanish mortgage, make certain that you ask the right questions at the outset. The best thing to do is get an expert to assist you.
So should I or shouldn’t I get a Spanish mortgage?
The answer is definitely to consider one, as it could be the key to being able to afford your perfect property, which might be out of your budget without one. The main bit of advice is to be very careful of how you go about obtaining mortgage finance for a Spanish property purchase.
A final word from us
A finance-first strategy for non-residents is the key to success in getting a mortgage agreement in the current property market. Being mortgage-ready provides the buyer with more power, as sellers will often reject offers if they aren’t convinced the buyer can act quickly.
As we already explored, the Spanish system is traditional and slow, meaning expert guidance is necessary to navigate a market where foreign buyers have no local credit history.
We always encourage Spanish property investors to ensure their mortgage finances are nicely organised before they agree to put money forward as a non-refundable reservation deposit or 10% private purchase agreement (arras) to ensure that the purchase goes through smoothly without any costly mishaps.
You need a dream team of experts around you to help you get your dream home in Spain:
- A trusted real estate agent: Will help you find the right Spanish property in a market where not all agents are reliable.
- A seasoned mortgage broker: Acts as a guide through the banking system, providing access to multiple lenders and ensuring a plan B is available if the bank changes its terms at the last minute.
- An experienced lawyer: Conducts proper research into the legal standing of the house.
- A tax advisor: Helps buyers to understand any significant tax implications before they buy.
- A foreign exchange currency broker: Enables people to convert and transfer money between different currencies, usually offering better rates and lower fees than banks.
To speak with one of our financial experts here at Fluent Finance Abroad, give us a call on +34 952 85 36 47 or fill out the form below, and we’ll be in touch.
