Mortage

Getting a mortgage

There are five basic types of finance arrangement available internationally; to enable you to determine which one suits you and your circumstances best there follows a brief description of each: -

1) International Mortgages

Depending on the country you’re resident in and the country you’re considering buying property in some domestic lenders offer international mortgages for overseas real estate purchase.

An example is Lloyds TSB in the UK which offers resident Britons who already own a home in the UK an international mortgage scheme specifically for the purchase of real estate in Spain.

The types of mortgage and repayment vehicles are standard to the domestic country (e.g., UK or US) though there is often the added criterion that the purchaser is already a home owner in the local country and any mortgages available are only for up to 70% of the purchase price.

2) Local Spanish Mortgages

As Spain is largely geared to the foreign property buyer it’s often possible to raise a mortgage locally in Spain especially when you approach one of the larger international bank’s subsidiaries. It’s still important to make sure you understand the local terms and conditions of the loan and the repayment vehicle as well as checking and comparing the interest rates available to you with those available from an international lender ‘back home.’

3) Expatriate Mortgages

If you’re already an expatriate whether in Spain or another overseas country and you want to buy in Spain or you’re interested in buying a home in your originating country for investment purposes or as a base for you to return to at some point in the future, it can be tricky to secure a mortgage.

If you had a strong credit history before you expatriated and you’re now in receipt of income to support your mortgage application there are a number of lenders specifically interested in attracting expatriate business though. Some of the major high street lenders will charge you a bit of a premium for the ease of application and service they offer and it’s actually worth while shopping round on the internet to see who else is offering specific expatriate mortgages.

Usually you should be able to borrow up to 85% of the property’s value and when it comes to proof of income this can be made up of earned, pension, investment and rental income.

4) Equity Release and Second Mortgages

This is of course the simplest and most popular method being used currently for the purchase of holiday homes overseas by many buyers. In the UK especially, where the housing market has significantly strengthened over the last 5 – 7 years, many people have built up substantial equity in their homes and are now releasing this ‘extra money’ to purchase property in Spain in cash.

If you consider this method you must accept that the additional sum you add to your mortgage will incur interest, it will have to be repaid over the term or at the end of the term of your mortgage and that the whole loan is secured on your main property.

5) Installment Payments

You might like to consider purchasing property off plan as this can give you the option to pay for the real estate via a series of installments or stage payments that you can save up to fund during the build period.

After paying the securing deposit your installment dates and amounts will be written into your purchase contract enabling you to budget accordingly. Clearly this method would particularly suit those with a high level of disposable income.

Once you have determined the most suitable method to suit your requirements and circumstances you can begin your search for a lender if applicable. Consider searching the internet, using forums, expatriate and international property sites, examining lenders sites and you can also listen to personal recommendations from friends, family and colleagues who have already undertaken property purchases in Spain.

Now you need a mortgage. There are two figures that are important. Firstly, the TAE which is the initial interest rate for the first six months. A good TAE rate would be 2.5%. The most important figure, however, is the interest rate after the first six months. This consists of the Euribor, which is the set European interest rate that changes every year and has been roughly 2% for the last three years, and the individual bank’s interest rate, which can be anything from 0.49% to 0.75%. A good interest rate would be Euribor + 0.49% (2.49%). Many banks offer excellent TAE rates but high individual rates that only come into effect after the first six months. You might also find that bank managers do not explain clearly what each interest rate means.

Mortgage eligibility – risk assessment
To assess whether you are legible for a mortgage, the bank will evaluate what level of risk you present. This process is called “Riesgos,” and normally takes between 7-14 days. It is a good idea to ask for a mortgage loan from a few banks at the same time so that if one bank rejects your request, there are others in the process of considering it. Remember, you only have limited time before your reservation contract runs out! To carry out the risk process, a bank will ask for the following things: a surveyor’s appraisal of the property in question (“tasamiento”: for a fee of €140 the bank or the estate agent’s will make the necessary arrangements); a full time employment contract or evidence of monthly earnings for a prolonged period of time (one year); details of all bank accounts in Spain and a signed statement testifying that you have no undeclared debts in Spain (this does not include information about other countries so if you have student loan repayments or outstanding debts abroad it is not necessary to declare them); NIE/NIF number and identification documents. Quite often if the bank considers that you present a high risk then they will grant you the mortgage on the basis that a guarantor also signs the mortgage loan contract. This means that if you or your partner can not make a mortgage repayment, the guarantor will be held responsible for said repayment. A guarantor must be a property owner and in full time employment. It will be necessary to present legal information about the guarantor’s earnings and identity to the bank. Foreign people might have a problem in this instance if their guarantor does not live in Spain as many banks will only accept Spanish residents as legible guarantors. One of the few banks that accept guarantors based outside of Spain is the Caja Mar.

Signing the contract
Once you have been approved for a mortgage loan, the bank will set a date with the solicitor and the estate agent to sign the contract for both the property sale and the mortgage loan. On this day the buyer, the seller, the estate agent rep., the bank manager and the solicitor will be present. Be prepared for the seller to want to take a 5% share of the total price as “black money / en negro.” This is a common, albeit illegal, practice in which the full price quoted on the contract for the property sale is 5% less than the asking price, which is then given as a separate check to the seller so that they can avoid paying tax on this money. You will have a cheaper tax bracket if the property is legally owned by a Spanish resident and, therefore, it is worth considering carefully whose name appears in the property contract.

We hope that this article has cleared up some of those doubts or shed a little light on the daunting process that has become the talk of the town for many citizens of Barcelona.