Mortgages in Spain - the basics
How much can I borrow?
The percentage of the property cost that is mortgaged is known as the Loan-to-Value (LTV) percentage. It’s based on the lower of valuation or purchase price. For non-residents (who don’t pay tax in Spain) the maximum LTV is 60-70%% but depends on property price and financial profile of the buyer. For fiscal taxpayers the maximum is 80%.
Can I afford it?
In terms of what you can borrow, the banks consider your Debt-to-Income ratio (DTI). They will require that approximately one-third of your net monthly income covers your existing debts including any rent you might pay plus the new Spanish mortgage.
What other costs must I pay?
Fees and taxes relating to the property purchase and the mortgage set-up are generally 9-13% of the property price, depending on the region of Spain. The buyer generally must prove they have these funds before the mortgage is agreed.
Will I be approved?
It’s advisable to get a mortgage approved in principle before starting the purchase process. This will confirm the upper limit of the price range in which you search and can put you in a stronger position when negotiating the property price; the vendor will know you are serious and can move quickly.
What type of mortgage? Fixed or Variable?
Spanish banks usually offer a mortgage rate related to the European base rate the Euribor (e.g. Euribor plus 1.5%). The percentage added to the Euribor depends on various factors, mainly the LTV, the income/debt profile of the client and the term of the mortgage. The monthly payments on a variable rate mortgage will go up or down according to movements in the Euribor. Fixed-rate mortgages are also available for the whole term, usually offered at a higher addition to the Euribor but with the certainty that repayments won’t change.
Buy-to-Let? Interest Only?
Currently these types of mortgage that are common in the UK and other countries are not yet offered by Spanish banks. If you plan to rent out your new Spanish property, potential rental income won’t be considered in your DTI calculation.
How to apply for a mortgage?
While it is possible to walk into a Spanish bank branch and apply for a mortgage, you are likely to get a better deal by applying via a licenced broker. They will have access to better deals than are on offer in the high street and will know which banks are best suited to a buyer’s financial profile. They can help with presenting the financial documents required and are permitted to keep the buyer updated throughout the purchase process.
Which broker to use?
Hello2Spain.com has chosen to collaborate with Mortgage Direct over other brokers/intermediaries. They have been operating in Spain since 2006 and since then have cemented their place as the leading independent broker in Spain. They were one of the first brokers to achieve the Bank of Spain’s official licence (introduced in 2020), are completely independent and have a wealth of experience in a market where contacts are everything and premium service is key.