Spanish Mortgages Getting Cheaper
The latest figures show that banks in Spain are offering the best deals on mortgages to non-resident buyers since pre-2008. As a result of Spanish Government legislation introduced last November, banks and not borrowers are now liable for stamp duty (AJD) which makes up some 2 to 2.5 per cent of the repayment value. The European Central Bank’s Euribor which underpins mortgage rates in Spain is also low, standing at just 0.11% in June.
These factors have caused a renewed enthusiasm amongst lenders to compete for foreign investment, which has led to some banks now offering to cover more of the mortgage application costs for potential buyers. The system for lending in Spain differs from that in the UK and other countries as it works on a debt-to-income ratio without the use of income multiples when calculating affordability.
A Spanish bank will lend up to 70% of the property value to a non-resident depending on an individual’s financial profile, but it has to be considered that buying costs of around 10 to 15% will bring the value of the mortgage, against the property price down to around 55%. Buy-to-let and interest only mortgages are not available in Spain but banks are moving toward offering fixed rate mortgages as well as variable rate mortgages which were previously almost always the only option available to foreign buyers.
Fixed mortgage rates currently stand at up to 1% higher than their variable counterparts but present a lower risk factor as they remain constant for the duration of the loan.
Variable rates, however, can prove beneficial to customers looking at paying off the mortgage early as current interest rates are low and if an agreement without early repayment fees can be secured the rates can be as low as 1.4% on the outstanding balance until the debt is paid off. UK investors may also consider it wise to borrow in euros whilst the pound is weak in order to repay the loan in full when exchange rates take a turn for the better.
Fixed rates are dependent on the sum borrowed and criteria of the qualifying client but it is quite common to be offered 2.4% over 20 years or 2.65% over 25 years on mortgages up to 200,000€. These rates can be reduced by approximately 0.2% if the value of the mortgage is substantially higher. It is worth remembering that Spanish banks will not provide mortgages on new-builds so applications may be delayed awaiting valuation upon completion of the property.
This means that any initial purchase costs will have to be paid in cash by the investor. Further costs to be considered when buying property in Spain are: valuation fees, notary fees, registry fees and mortgage deeds, however, where sums of over 250,000€ are involved, some banks will now agree to cover these costs, amounting to a saving of over 2,000€. This competitive climate will allow foreign investors greater inroads into the Spanish property market and there couldn’t be better news for anyone dreaming of owning a home in Spain.
There is good news, too, for current non-resident mortgage holders as banks in Spain are offering lower rate re-mortgages to customers paying fixed rates for the first time ever. Encouraging signs indeed for those looking to secure a mortgage on real estate in Spain. The only thing to remember is to seek expert advice and assistance in order to speed the process of becoming a Spanish property owner.
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