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CAN
I GET A SPANISH
MORTGAGE?
There are two main criteria for determining how much you
can borrow in Spain:
Mortgages are available up to 80% of the mortgage valuation, and this figure
is a maximum guideline set by the Bank of Spain, so normally it will not be
possible to borrow more than this. Spanish banks can only lend on the
basis of a mortgage valuation.
Mortgage valuations are carried out as prescribed
by law in Spain, and are NOT a market valuation. Spanish law requires that
valuations be set by reference to the recorded transaction values of at least 6
similar properties, which have been sold in the area in the preceding 6 months.
The valuer derives an average price per square metre from these comparison
properties, and this is then multiplied up by the size of the property to arrive
at the mortgage valuation.
Where a property is bought "off-plan" at a lotheyr price than the end value, or
if the price is below the valuation for any other reason, and if the amount
available / requested based on the mortgage value is more than the contract
price, the bank may limit the mortgage to the amount paid in the contract. This is
because if the mortgage is more than the declared value, the tax authorities
will suspect that the property has been under-declared, and the transaction
could be investigated and the buyer could be penalised.
The Spanish legal system for property purchase and mortgage valuations can
give rise to a number of problems. To summarize, they are:
- Vendors often insist that the price is under-declared on the escritura, and
that part of the price is paid unofficially to avoid tax. The mortgage cannot
exceed the amount being declared;
- Mortgage valuations are based on comparison values taken from the Property
Register, so only reflect declared values. On average these are 10% below the
full market price;
- Mortgage valuations are essentially only "bricks & mortar" valuations and
the value of any exceptionally large plots of land is not included;
- Mortgage valuations are only based on the size of the property recorded in
the property Register and very often owners have not registered the full size to
avoid tax
- Banks
can only lend on properties that are registered for residential
occupation [viviendas or casas]. Again to avoid tax, rural properties are
often not registered in this way;
- If one of the above problems arises and the property is in an area zoned for
building [urbano], getting the registration changed should not be a problem;
but if it is in a rural area [rustico],
building is not allotheyd, so getting the
registration changed will be more difficult, or maybe impossible.
To check the registration status,
you will need to provide a "nota simple" [this is an
extract from the Property Register which gives us the necessary
information].
Especially with rural properties, it will often transpire that the maximum
mortgage is around 50% of the price, as a combination of the above problems will
often arise. These problems generally occur to a much lesser extent with
new properties.
This status requirement is only a guideline and can be increased in
appropriate circumstances. For example, if the mortgage required is only 50% of
the mortgage valuation, and if your [joint] net income is relatively high [for
example, over £50,000 per year], the ratio can be increased up to 50%.
So far as your income is concerned, Spanish
banks lend on the
basis that your total monthly repayments should not exceed 35% of your [joint]
net monthly disposable income [after tax and national insurance]. To work out
how much you can borrow, they first calculate the 35%; from this, they deduct your
monthly commitments in the UK [monthly mortgage repayment, rent, repayments on
any other loans, and any other legal commitments such as court orders].
The remaining amount is available to meet the monthly mortgage repayments in
Spain, and they then convert this into a loan amount, depending on the term
required.
A mortgage in Spain is a notarial act and so cannot be changed. It is
therefore always advisable to give yourself as much flexibility as possible at
the start, especially regarding the term. You can overpay your account by up to
10% per year in order to repay it sooner than the official term.
MORTGAGES
ON NEW PROPERTIES
If you are buying a new property, a
bank cannot grant the mortgage until the
property has been completed and registered. Until then it does not exist in law
in Spain, so you cannot buy it, and it cannot be mortgaged. The contract you
sign at the start is not a purchase contract, but a contract in which you commit
to buying it at a future date when it has been completed. As a result, any
stage payments are an unsecured loan to the builder, and your lawyer must make
sure they have the legally required bank or insurance guarantee [about 20% of
builders do not do this]. So, a mortgage in Spain cannot finance the stage
payments during the construction period [but they can still lend you the 80%
maximum once the property is completed and registered, irrespective of how much
you have paid in stage payments]. You need to either finance these yourself and
recover this amount from the mortgage at the end, or they can help by arranging a
re-mortgage of your UK property for the amount of the stage payments, and do the
mortgage in Spain for the final payment.
RELEASE
OF FUNDS
The
bank cannot release any funds until the builders have received the certificate
of first occupation from the local town hall, the property has been registered,
and the legally required 10-year insurance policy against building defects [the
Spanish equivalent of our NHBC certificate] has been issued. It would be
advisable to check with the builders that this will not cause any problems.
If it is a country property, in order for it to be mortgageable, the building
has to be registered as a “vivienda” [dwelling]. To check this, the bank will
need a copy
of the "nota simple" [the extract from the Property Register] and also [if
possible] the agent's details of the property. You will therefore need to obtain
these documents whilst you are in Spain and forward them to the bank.
It is quite common in Spain for vendors of resale properties to demand that
you pay part of the price in cash, and under-declare the official price on the
escritura. This practice seems to be particularly common in the more traditional
and rural areas such as the Costa de la Luz and in Almeria. The
under-registration itself is not illegal, so notaries will accept it; but the
resultant avoidance of tax is, and you as the buyer are held responsible if it
is discovered by the tax authorities and you will have the penalties to pay.
Furthermore, in effect all this is doing is transferring the vendor's tax
liability to you for the future, so for both legal and financial reasons we
advise that you do not agree to under-declare by more than around 10 to 15%.
It is often something that vendors will try to slip into the deal at the last
minute, so make your intentions on this clear from the outset.
So far as the mortgage is concerned, this cannot exceed the amount being
declared on the escritura. If this is an issue in your proposed purchase, it is
something that you must discuss with your lawyer.
You generally
do not have to wait until you have found the property before you can
submit an application form. You can submit it in advance so that the
bank can consider
issuing an approval in principle, based on your current financial situation,
before you commit yourself to the purchase.
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