Mortgage in Spain

What is important to the bank?

As an independent buy-side real estate agent we have experienced that people from northern Europe are usually not aware of mortgage possibilities and impossibilities in Spain. Some have simply never given it any thought, and most think they can easily get 100% loan to value on the Spanish property.

We always advise our clients to first look into the matter before starting any negotiations, or worse, do any down payments. Although some agencies will tell you otherwise in their screaming ads, a 100% mortgage is only possible in some cases. Below you will find a brief summary of mortgage types and possibilities in Spain and important factors for the bank in their decision to grant you a mortgage.

Mortgage types in Spain

Interest only mortgage: with this type of mortgage the actual loan will stay the same throughout the term. During the term you will only pay interest. The highest interest only mortgage is 70% loan to value.

Capital & interest mortgage: with this type of mortgage you will pay back the loan during the term and you pay interest over the current loan amount. Usually the total amount that you need to pay per month is higher than with an interest only mortgage. The loan to value is maximised on 80%.

Combined mortgage: a number of banks have products that combine the two mortgage types. You only have to pay the interest during the first part of the term, either a third of the term or a fixed number of years.

What is important to the bank in the decision process to grant you a mortgage?

Age: most banks in Spain use age limits up to 70 years. With some banks you can get a mortgage until the age of 80 or 85 years. In some cases it is possible to let somebody younger, i.e. a child, co-sign the mortgage in order to stretch the term.
Net income: You can use approximately 40% of your net income on mortgage payments.
Valuation of the property:The bank will need to have a taxation done by an independent agency appointed by the bank. Most banks will base the mortgage on the valuation and the actual selling price. They will take the lower of the two. Some banks use solely the valuation. With these banks you can, if the valuation is considerably higher than the selling price, get 100% finance. In most cases you should realise that you have to invest some 30% yourself..
Resident or non-resident:Residents can, with restrictions, get better deals than non-residents.
First or second home:Is of importance to some banks. Like with the latter point, the risk for the bank is lower when clients can not easily flee the country.

A typical example

Mr. and Mrs. A buy a house in Alicante at a price of € 300,000. The extra costs will be around € 30,000 (10%). After the application at the bank is done, the value of the house is set on € 330,000. Looking at the valuation and the selling price, the bank will grant a mortgage of 80% of the lowest, being 80% of 300,000. The clients can get a mortgage of € 240,000 they have to invest approximately € 90,000 themselves.

Before you start selecting and visiting properties we advise you to limit your search by a budget that is sensible, based on the above mentioned factors. Let us know if you need some help to determine your budget.

This is an article by Costa Select

Costa Select is an independent real estate agency for the Costa Blanca and Murcia region. They guide their clients through the process of buying a property in Spain, an important part of which is to arrange for a mortgage in Spain.

website: www.costaselect.com

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This article was published by Marc Stam