Are you thinking about obtaining a mortgage in Spain? Taking out a mortgage is one of the biggest decisions that you are ever going to make, so it is really important to know all the facts before you commit. Some buyers choose to get their mortgages directly from banks but others choose to use mortgage brokers who are specialised in securing the best packages for both non-residents and residents and obtaining the most competitive mortgage rates. They can also help you decide whether to take out a Spanish mortgage or remortgage an existing property in another country. Recently there has been a significant increase in the number of Spanish banks lending for property purchases, which has led to some very attractive conditions for buyers. MumAbroad Life has been speaking to Kevin Monger of Mortgage Direct about some of the most pertinent questions about obtaining a mortgage in Spain.
Interview with Kevin Monger of Mortgage Direct
As a foreign resident living in Spain, what are the challenges of obtaining a mortgage in Spain?
The main challenge is finding the right bank to suit your profile. Bank products and eligibility criteria vary considerably and one bank may be appropriate for one client and totally unsuitable for another. One bank may decline a client’s mortgage when another bank would have approved it. Not knowing the most appropriate bank(s) can cause delays in the buying process and if, for example, a client has their mortgage application declined after several weeks, they would then have to start with another bank and may lose the property.
Another challenge is if the client has only lived in Spain (or paid Spanish taxes) for a short period. To qualify for resident conditions, banks will usually require official proof of paying Spanish tax, such as the first annual tax statement (Declaración de la Renta). It is always advisable to go to your own bank first if you pay your income into a Spanish bank account.
How would you summarise the Spanish mortgage market today?
The Spanish mortgage market is very strong still, even during the pandemic. Banks are lending more freely and offering competitive conditions for both residents and non- residents. However, the banks are still very cautious about who they lend to and will ensure all necessary affordability checks are carried out.
How sophisticated is the Spanish mortgage market compared to other European countries?
The market is not sophisticated at all in our opinion. We anticipate that this could change in the future, but for the moment at least, the Spanish mortgage market currently lags behind other countries in terms of the range of products offered. Re- mortgaging and equity release products are virtually non-existent; nor are buy-to-let mortgages and lifetime loans available.
Is it a good time to be taking out a mortgage?
Yes. With interest rates at an all-time low and fixed rates as low as 1.5% for the whole term, borrowing is cheap, thereby making borrowing in Spain very affordable.
Photo: Tierra Mallorca @unsplash
Why should potential buyers go via a mortgage broker and not directly to a bank?
Mortgage Direct understands the banks’ eligibility criteria and will refer you only to banks suited to your profile. Banks offer us preferential terms to ensure we continue referring our clients to them so you can be confident that you will receive the lowest interest rates and the highest possible levels of borrowing.
Another important factor is that the underwriters know that our clients have a negligible rate of default and have been pre-qualified before we refer them, so they feel more confident approving our cases. They give our clients a better, faster service than they would receive by going directly.
What are the key conditions for obtaining a Spanish mortgage?
To have a suitable income to meet the bank’s affordability calculations and to have enough cash for the deposit (minimum of 20% for residents or 30% for fiscal residents) plus around 10-13% of the purchase price to cover fees and taxes.
What are the normal terms offered by banks?
Clients can qualify for a 25 or 30-year term, as long as it is paid off by age 75-80 (depending on the bank). If clients take a variable rate, the banks use the 12-month Euribor as the base rate and add a margin, (e.g. Euribor + 1.25%). The rate is reviewed on each mortgage anniversary and repayments increase or decrease according to the movement of the Euribor in the preceding year. Most banks now offer a fixed rate option for the whole term and some lenders offer mixed rates; a fixed rate for an agreed term, switching to a variable rate for the remainder of the term.
What is normally the maximum one can borrow? For couples do banks take into account both income streams?
For individuals or couples who have not been living and paying their taxes in Spain, the maximum would be up to 70% (of the lower of the purchase price and the bank’s valuation). If you can demonstrate that you have been living in Spain and paying taxes here, you can borrow up to 80%. The banks will take into account both income streams, although often they will treat the mortgage as non-resident if one of the income applicants does not pay their income tax in Spain.
Do banks do credit checks?
Yes. They will carry out a Spanish credit check (called a CIRBE) to see if the applicant(s) have any existing debts in Spain and they will also ask foreign buyers to provide an independent credit report for their home country. For example, British buyers would be asked to provide a full UK Experian report (by visiting www.experian.co.uk).
Do you recommend clients to take out fixed or variable rate mortgages?
Most of our clients want a fixed rate product because the rates offered are so low and the rate is fixed for the whole term (not just the initial years). It is widely expected that the European Central Bank (ECB) rate will start to increase interest rates at some point in the future, and although the rise is likely to be gradual, it makes sense to opt for a fixed rate if you are intending to hold on to the property for a long period.
Do you always use Spanish banks?
In the current market, normally, but not always. We always recommend the bank that offers the best mortgage conditions to the client, based on their profile, so this could mean a foreign based lender or a private bank.
Photo: Tierra Mallorca @unsplash
What are the potential pitfalls to look out for when taking out a mortgage?
Firstly, ensure you are aware of the costs involved with purchasing in Spain. In addition to the deposit, you will need sufficient cash to cover the fees and taxes related to the purchase and the mortgage.
We advise that anyone looking for a mortgage speaks to experts such as ourselves – banks here are very good at over-promising and under-delivering when there is no intermediary involved.
Finally, if you do speak to a bank directly, make a point of requesting that they do not register you, as once they do this it is very difficult, if not impossible, for an intermediary to secure a mortgage with preferential terms via their own contacts at the same bank. We have many clients who come to us having already approached lenders and regretting it, as they have been offered poor terms and/or receiving poor service from certain banks. We might have excellent contacts and be able to offer excellent conditions through our contacts at these banks, but we are not able to assist them.
Is it easy to change your mortgage or re-mortgage in Spain?
No. The costs for changing mortgage providers are very costly and are usually outweighed by the reduced monthly premiums (due to the lower interest rate being offered). It can be possible to switch from variable to fixed or vice versa, extend the term, or make other changes to the terms, but this depends on the individual bank.
Is it possible to take out more than one mortgage?
Yes, assuming you meet the bank’s affordability criteria. Some banks reduce the borrowing amount by perhaps 10 or 20% of what you achieved for your previous Spanish mortgage.
Normally, how long does the process take?
From the start of the process until you own the property, you should allow from around 8 weeks if a mortgage is involved. We have completed mortgages within 4 weeks, although this is exceptional.
March 2021
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All that I can describe is my own experience. I am a UK/EC citizen, and people from the UK represent the largest group of extranjeros en Espana. I got an NIE sorted out in two hours in Ronda, Andalucia. I would not expect an American to be instantly given the same kind of residential status that an EC citizen enjoys. In eg Italy, Switzerland and France a US citizen would get at best 12 months temporary residence, and quite possibly not even that. Bank loans would be out of the question because there would be no right to work.
I do speak Spanish and my opinion is that any foreigner living in Spain should at least be reasonable in that language. Anyone trying to get anything done in the UK who does not speak perfect English will be totally ignored.
The request from expat.com asked specifically for a recommended bank. I have worked in Madrid, Oviedo and The Canaries, and Cajamar in all three regions has been brilliant. They are not aggressively hunting customers like other Spanish Banks. They just quietly get on with doing their job properly and efficiently. They also specialize in rural regions where most expats from the UK want to live.