Once you have decided on the home you wish to buy you need to know how to finance it. There are several ways in which you can do this. If you are lucky enough to have the cash in the bank then you don’t need to worry about the actual financing of it – however take a look at the section on exchanging your money as this could save you a lot of money. If you don’t have the finances readily available how do you finance the property?
The main ways are * Arranging a Spanish Mortgage * Arranging a mortgage with a UK lender * Re-mortgaging your existing property * Builders finance
Arranging a Spanish Mortgage Most Spanish banks will lend to foreigners providing they can prove an ability to repay. Prior to applying you will need a bank account and, although banks don’t insist you have an account with them- they would obviously prefer it if you did.
The requirements are similar to the UK. Banks will lend upto 70% of the property value to foreigners (80% in some cases though this is now harder with a tightening market). However, this depends on the bank, the director and the property. It is easier to get a high mortgage on a new or nearly new property than it is to get a small mortgage on a ruined Finca needing a lot of work – banks don’t appreciate the potential value of the property – only the current value.
The bank will require proof of income and in some cases your outgoings. Therefore you will need your pay slips for the previous 3 months and proof of outgoings. If self-employed you’ll need to show accounts for the previous 2-3 years.
Most banks insist on life insurance and most mortgages are repaid over 10-15 years but they can extend to 30 years in exceptional circumstances, however most banks will insist on repayment before the age of 70. It is also possible you may need a guarantor – I for example had to guarantee my parents mortgage as they are both retired (although their pensions were more than I earned).
Spanish banks charge from 0.5% – 3% of the mortgage value for taking a mortgage with them (it isn’t enough that you’re paying interest as well). It’s possible to reduce this if you persist – so ask your bank – you may get a discount on this fee. (If you don’t speak Spanish ask your agent to do so- but beware he may be getting a commission from the bank and may be reluctant to.)
You will need to think about the monthly cost when transferring money to Spain for the mortgage. If you have bought to let then the rental should cover the monthly repayments. If not then you may be as well looking into transferring money through a specialist- such as http://www.currencyuk.co.uk – who have provided our clients with excellent service in the past.
Currency fluctuations and transfer fees can cost you a fortune and your bank is not the best to deal with – they have little experience in the currency market. For example a friend bought a house here and her Euros cost her £500 more (on £14,000) by using her bank than if she has used a currency broker.
Obviously it’s your money but a broker is able to buy currency at a commercial rate as they deal in currency every day. They can even secure a fixed exchange rate for up to 12 months – so you know in advance the cost of buying your home. If you are using this sort of service for your monthly mortgage payments, you may be better transferring 6 months at a time because they generally don’t deal in amounts less than £5,000.
The process of applying for a Spanish Mortgage.
Applying for a Spanish mortgage is usually a case of visiting the bank and speaking to the director. They will fill in the forms for you so you just need to sign. Once he has established your credentials he will give you a preliminary yes or no. Once a yes is given it is dependent upon a satisfactory survey. Although the final decision is taken by the banks head office, seldom the decision given by the director overturned.
Arranging a UK Mortgage
There are many UK lenders who will lend against a Spanish property but these are more expensive than a Spanish Mortgage. However, it is always wise to check every avenue before committing yourself.
The approval process is similar to getting a buy to let mortgage in the UK in that you would have to prove around about 125% of the potential mortgage payments in rental income.
The amount you can borrow for a property in Spain also depends on the property valuation. Obviously, the higher the valuation, the more you can borrow. For UK mortgages (or offshore mortgages) the Loan to Value is generally a lot lower than getting a mortgage in Spain.
So what are the advantages of a UK based mortgage? Firstly you will be no language problems. Secondly the repayments will be in Sterling so there will be no exchange rate concerns if the rate fluctuates wildly – you will always know what you will be paying.
However, if you are buying a property to rent then it may be advisable to have a Spanish mortgage – especially if the rental income will be paid in Euros. However the final decision to go for a Spanish Mortgage or UK one lies with you.
Re-mortgaging your existing property
The easiest way of raising finance for your property in Spain is to re-mortgage your existing property. This obviously depends on the equity you have in your existing home and your income in respect of the amount you would like to borrow. However the bank already knows you so the process is more straightforward, the amount you can borrow is not dependent on the value of the property you are buying therefore your dream Finca is more realistic) and the process takes less time than obtaining a UK Mortgage.
Many developers of properties can now offer upto 80% mortgages for non residents. This is achievable because of the value new properties generally represent when buying off Plan. However for off plan investments it is very difficult to get a mortgage until the certificate of habitation is issued.
Whatever type of mortgage you decide on there are certain documents you will need. The documentation required will vary from bank to bank. As a guideline it is a good idea to prepare much of these as soon as possible.
If you are employed you will need:
* Last 3 salary slips. * Last income tax declaration (P60 in the UK) or evidence of latest annual tax assessment * Letter from your employer confirming date of employment and proof of income.
If you are self-employed you need
* Latest income tax declaration * Copies of the accounts for the last 2 / 3 years * Company report, confirming personal drawings
Other documents you will need:
A Spanish bank account
NIE number from the local police station
The nota simple from the property registry
Offer letter of sales/purchase contract
Copy of passport / residence permit /NIE
Copies of last 6 months bank statements
Bank reference letter.
About the author:
Vince Barnes – www.SpanishProperty-Direct.co.uk – information about the buying process in Spain. up to date with news affecting the Spanish Property Market. New Book – “The Insiders Secret Guide To Buying A Property In Spain” – at www.spanishproperty-direct.co.uk/book.htm.
Written by: Vince Barnes