Spanish Mortgages – Should I or Shouldn’t I?
It seems to be the million dollar question these days and 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.
Two or three years ago it was very hard to find a Spanish bank willing to open it’s coffers, not just to non Spanish clients but to Spanish nationals too.
Saying that, there are only a few banks worth talking to when it comes to borrowing money. Therefore anyone thinking of going to a Spanish bank themselves should take great care when dealing with the various banks that say that they are open for business.
The things that you need to watch out for are the following:
· Lack of consumer protection –
In our experience Spanish banks can and will say pretty much anything in order to try and get some business through the door. They will say YES to appease you and entice you in. Once you are in you may find that you will hear a number of excuses as to why it is taking so long to get a decision or you will find that the terms and conditions that 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, which might be very unpleasant, you have already put your deposit down and have a completion date to fulfill. 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 as they could go over the timescales set in the purchase contract.
· It is never the branch staff’s fault –
Branch staff will always blame those faceless people in the risk department or underwriters for the reasons why you didn’t get the terms offered originally or why you have been declined for the mortgage. The frustrating thing is there is nothing that you can do if that is the decision that has been made.
· Just because the bank is an international name it doesn’t mean they are any good –
I always hear from potential clients “I tried one of the big well known banks as I thought they would be best to help me as I recognise them / or have an account with them in my own country.” Do not fall into this trap, ask yourself how good are the big banks in your own country? I would imagine that they are so big that you do not get the service that you feel you deserve. Spain is no different, the big banks over here, I would say, are even worse and I believe that if it wasn’t for their interests in other countries such as South America and in other countries in Europe and the US, these famous Spanish banks would not exist today. The level of service from some of these banks is plainly awful.
· You will not get an official agreement in principle until you submit a full application –
There is no Agreement In Principle (AIP) system in Spain. Therefore you will need to get all your paperwork together and submitted to them before underwriting can give it the OK. Some banks will not even do this until you have paid for a valuation of the property. This is something that makes me extremely angry with them, I mean why would you ask a client to pay for a survey when you aren’t guarateeing that the mortgage will be forthcoming after it has been paid for? Surely it would make more sense to get the income documentation verified and OK’d by the risk department first and then send the surveyor to assess the property. Sometimes I get the feeling that certain banks are encouraged to do this whatever the outcome because they may get a small commission from the valuation company. This may sound cynical but having spent TEN years working with Spanish banks I wouldn’t put anything past them to be honest.
· Be careful of what hidden products they will insist that you take in order to approve the mortgage –
This is a very old trick that Spanish banks pull. They may have agreed to the amount that you need but you may not know until a couple of days before completion date or even at notary, on the day of completion, that you have to sign up to life insurance, credit cards, home and contents and even a pension plan. Some of these products are inoffensive such as home and contents which to be fair you need to have, but things like pensions and credit cards are just abusive in relation to a mortgage application. Special attention should be taken when they insist on life insurance. Some lenders will insist that you pay for the life cover up front and they say that it would be unfair of them to expect you to pay for it out of your own pocket, so they give you a loan to pay for the life insurance. HOW NICE of them! Now let’s analyse this, they sell you life insurance which they probably get a commission for and as they lend you the money to pay for it up front, they also gain interest on top of that loan. This is outrageous and should be reported as mis-selling in my opinion.
· Make sure you are aware of the costs of setting up a Spanish mortgage –
Most real estate agents and lawyers fail to mention these costs and just give potential buyers the normal line of “closing costs should be in the region of 11%.” Please be aware that if you are considering using a Spanish mortgage to help you buy a home here, then you will have to factor in extra funds to pay for setting up the mortgage deed. Typical costs are; 1-1.5% to the bank who are arranging the finance for you; 1.8-2% stamp duty (AJD) which is paid to the government; notary, admin and legal fees for registering the mortgage deed. All of the above percentages are always based on the size of mortgage you require.
· Don’t expect to get ADVICE from a Spanish bank –
They will only offer you what products they have so cannot give you advice on what Spanish mortgages products are best for your requirements, having worked for a bank in the UK I can tell you how limited bank employees are when trying to recommend best advice to potential clients.
· Finally, there is really very little consumer protection in Spain for borrowers –
If you are considering taking a Spanish mortgage, make certain that you ask the right questions at the outset, if you know what they are. Once you have signed the contract you will find it very difficult to get out of it at a later date. You will probably have to employ a Spanish lawyer which could be very costly. 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 consider one, as it could be the key in being able to afford your perfect property which might be out of your budget without one. The main bit of advice, is be very careful of how you go about obtaining mortgage finance for a Spanish property purchase.
If you feel like you would like a free consultation please make sure to contact us at Fluent Finance Abroad.
Written by Marc Elliott de Lama 10.062014