Gecko Towers
“Money makes the World go around…..“. Well no it doesn’t, of course, but in making an acquisition of a property in the Marbella region it is something that you are going to need to take care of. Not only having it available, but having it to hand at the right point in your purchasing transaction.
By the point of Completion of your purchase, your Abogado (Spanish lawyer) should provide you with a detailed schedule of how much money you’ll need available and when it needs to be available.
In recent years, like many countries around the world, mortgage borrowers in Spain have benefitted from record low interest rates that could be fixed for a period, possibly for the life of the mortgage loan. This has stimulated pro-active lending by the Spanish banks to both Spanish residents and non-residents alike. Over the course of the last three years the record lows (as previously enjoyed) have varied with the Euribor – the mechanism for calculating the applicable mortgage interest rate – initially rising to deal with the vagaries of the lending market to gradually reducing, by the time of writing (mid-2024), again making a Spanish mortgage a lot more competitive when compared to the UK equivalent, for example.
Typical interest rates (from our bank contacts) at the time of writing vary from around 3.50% to 3.60% for some fixed term arrangements, plus associated products/services optioned, dropping the applicable interest rate to circa 3%.
Post Brexit, it has also become clear that while treated as a particular case, the British are now being positively encouraged to make their purchase in Spain using more widely available Spanish mortgages. Sadly the terms may be marginally less favorable than the equivalent lending to a Spanish resident but they are nonetheless reasonably attractive. Typically, a British borrower (subject to status) should expect to be able to receive a loan based on maximum 70% loan to value (LTV). That is the properties assessed value (more below) but importantly it’s not generally the agreed purchase price.
Those providing the valuation of target properties are generally controlled by the Banco de Espana and are called “Tasadors”. I have seen recent property valuations where the “Tasacion” is significantly over the agreed purchase price making the 70% LTV very comfortable for the bank lender. Equally, I have seen other situations where the valuations have been lower – it has been suggested that central bank pressure has resulted in some down-valuing – than the agreed purchase price making completion more complex.
There is perhaps more emphasis placed by Spanish bank lenders on “affordability” and “serviceability” and less on multiples of income. It is very important that your current income to borrowings ratio in your home market and elsewhere can be demonstrably shown to clear the bar imposed in Spain.
The availability of fixed rates have, given rises in inflation, been less available but our bank sources tell us that they view the non-resident buyers as an attractive lending case and they are keen to assist where they can. So it may be anticipated that achieving a fixed rate may well be available. Giving you borrowing certainty in your budgeting.
Seeking a Mortgage loan and providing your financial due diligence to be considered for such an advance is no longer particularly arduous. Many may feel that they are not really equipped to approach a Spanish lender, but in our experience this needn’t be a worry. Some of Spain’s biggest lenders, who we know well, have English speaking customer-facing staff who are increasingly adept at handling Mortgage enquiries from English speaking clients. Indeed some go even further and have dedicated teams with English, Danish, Dutch, Swedish, Norwegian and Polish speaking representatives ready to process your application.
There is a collective incentive to assist clients and levels of efficiency have increased exponentially over recent years. It is now completely normal for bank employees, versed in their systems and the documentation required from a myriad of applicants from around the World, to be able to handle new client Mortgage applications. This will often mean that you will secure a new bank account as part of the process together with household insurances and the like.
It may be interesting to note that some Mortgage lenders offer to reduce the interest rate you pay if, in tandem with your mortgage, you also apply for various ancillary products such intruder house alarms, health cover and life insurance. It may often be a condition of the Mortgage lending that you have life assurance cover.
Importantly there should be no cost to you for this service other than the usual Mortgage loan opening fees which tend to be 1%-1.5% of the Mortgage advance. These costs should be included in your application to borrow.
A word of caution, which may involve you in a significant amount of more paperwork. When purchasing of a Bank foreclosed/repossessed property, of which there continue to be some, will usually mean the purchase from the Bank which foreclosed. Naturally, the Bank has an incentive to turn their non-performing property asset into a performing Mortgage so it’s likely they will encourage you to take a Mortgage loan with them. You may be able to object to this as the Mortgages offered tend to far less commercial than one available on the open market.
In the due diligence process, in these times of very comprehensive Anti-Money Laundering regulations (more below), anecdotal evidence suggests that you will be required to deliver substantially more documentation to establish the “source of your funds” of the 30% balance of the purchase price plus circa 10% buying costs, that you are introducing from you own resources.
When dealing with a Bank lender, who we’d be more than happy to refer you to, they will proactively lead you to deliver in those materials needed to support your application. Many now offer a circa 72 hour non-binding “agreement in principle” process so that you can identify, early, what are your prospects of obtaining the funding you need.
Having delivered your supporting documentation, including your earnings, debts and current financial commitments, and having established your ability to service a Mortgage loan, the Bank will make you an offer. As in the UK, the Mortgage offer may be time limited. So, please make sure that if, for any reason, your property Completion becomes delayed that you address this with your prospective lender in good time to enable them to extend any time limits, as required. You don’t want to have to reapply!
Once you are ready to complete you will be called to the Notary’s Office at least ten (10) working days ahead of your proposed Completion. The Notary will read to you the terms of the draft Mortgage Deed – that your Abogado should have already explained to you in English. This confronts the idea that you simply didn’t understand what you were signing. The Mortgage Deed, contains all the terms under which the Mortgage is offered, will be signed at Completion of your purchase but this ten day period is, in effect, a “cooling off period” allowing you to decide whether you actually want to go ahead with the borrowing. Following the formal Completion of your purchase, the Mortgage Deed will be registered as a legal charge at your local Land Registry against your property and in your name.
It is vital you consider your intentions for your property early in the purchase process. Will you seek to enjoy sole year round use or will you seek – subject to acquiring from the Town Hall, the applicable Touristic License – to place your property into the rental market? If the latter, I would suggest that you need to carefully check the paperwork with your Abogado, you’ll need to make sure that the terms of your Mortgage Deed allows you to engage in short term/long term rentals. Some Mortgage Deeds have clauses that prevent you from letting your property for more than a given period throughout the year.
What would happen if you exceeded the maximum period of rental mentioned in the Mortgage Deed? As unlikely as it may seem, if you are still paying the Mortgage on time, there is, I am told, the legal possibility that you may be in breach of the Mortgage Deed and be required to return the funds borrowed to the Lender.
For those who wish to remain a non-Spanish resident and plan to buy in the Marbella area, you will need to have access, from your own resources, to fund around 30% of the agreed purchase price plus a further 10% (calculated on the agreed purchase price) to cover your buying costs. It has been made clear to us by the lenders we are connected with, that currently a non-Spanish resident purchaser should be able to secure (subject to status) a 70% loan to value (LTV) Mortgage. There is some indication that this LTV may be reviewed in the fullness of time and possibly increased but that is not yet at all certain.
To enquire deeper into the processes including the Completion of a property purchase in Marbella please check out the MarbellaPropertyLawyers’ Guide 6 which considers in details the Buying Costs.
The nature of the Mortgage business in Spain is that there are many variables and simply one size doesn’t fit all. While you may not be too old at 60 to get a mortgage your income does need to support your application. Equally, those in long-term employment contracts may fair better than those with sporadic portfolio self-employed income. It doesn’t cost to ask, so please consider an application. We are here and happy to help.
If you hail from outside the Eurozone – and only 20 counties of the EU actually use the Euro – then you will need to convert your £/$/Krona to Euros. To do this most people use a bonded and trusted Foreign Exchange or Forex company. There are various reasons why you may prefer to do this rather than progress your exchange to Euros through your high street bank.
Usually the Forex company assists you to “buy ahead” meaning that if the current exchange rate is unappealing and you feel that it is going to improve – oddly it often dramatically improves in July and August – then you can then reserve your funds for a time when it’s more convenient to you.
You may become aware that there is currently a much improved exchange rate than in previous months, for example, but you don’t need the funds until later in the year, you will therefore be able to lock the price you buy your Euros at. This allows you to be sure that you will have sufficient Euro’s when you need them. Most Forex companies will deliver your Euros, upon your instruction, to a Spanish bank account that you will have opened.
If you opt for purchasing with a mortgage and you receive your salary, pension or income from other investments in your home currency, you also can set up a monthly arrangement whereby your funds are received, converted and loaded into your Spanish account ready to meet your monthly commitments
Whatever your rationale it’s important to compare regular bank rates with those of a Forex specialist. Generally, as the Forex company does nothing other than exchange funds for those in another currency they are usually able to offer more appealing rates particularly for larger transactions.
An issue that you should be wary of and on the lookout for is that many Spanish banks charge receiving fees. These may be a flat rate or a percentage of what you are sending to your bank. The net effect of this is that you may underestimate the amount that you need to send to your account to settle the upcoming cost that you need to pay. So it may be worth discussing this with your bank to ensure that you are not left short of funds.
We have experience of working with reputable and regulated currency traders and brokers who would be delighted to quote for their services to give you a clear understanding of timing, security and potential savings.
Should you be interested in discussing the process involved in buying a property in the Marbella region, we would be delighted to assist you. Please contact me to discuss your precise requirements.
Please note that our posts are for general interest. There is no substitute for proper advice tailored to your specific circumstances as provided by a qualified Abogado who is experienced in the application of the Spanish Law.
Nothing contained in this article should be seen or taken as the writer or the publisher providing legal, tax or financial advice. All details have been reasonably fact-checked and all efforts have been taken to ensure that facts are accurate as at the date of publication.
My details: Mark FR Wilkins, during usual business hours on +34 600 343 917 or e-mail me at mark@therightsgroup.com
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