Spain has always been a top choice for those looking to buy to rent or a holiday home because it provides fantastic weather, breath-taking landscape and a laid-back way of life. It has also many choices regarding location, whether it is with sea views, mountain views or right in the centre of town.
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Choosing between paying cash for a property outright and getting a mortgage is not always simple. Many clients consider getting a mortgage because of insufficient funds or because it’s not always a good idea to lock away your money on property. It might be best to benefit from tax advantages and to maintain liquidity.
Even though interest rates have increased considerably, Spain with Ireland still maintain one of the lowest in the Eurozone. EpData states that the average interest rate on a mortgage in March 2023 in Spain was 2.67% at 25 years and 65% of all mortgages were fixed rate.
During the property boom from 2003 to 2008 almost 200k mortgages were sign every month but during the financial crisis this number reduced to an average of 35K. Since then, after 2014, there has been a slow increase in mortgage concessions to an average of 60K a month. The banks are now stricter when accepting mortgage applications and offer more expensive rates. Only 46.934 mortgages were signed in February 2023 in Spain, 3.21% less than the previous month.
The short answer is yes. Expat residents and non-residents or foreigners over 18 can get a mortgage in Spain. Although Spanish banks have similar requirements to most banks worldwide, non-residents have a more rigorous eligibility criteria.
From the first point of contact with the bank until the mortgage is finalized, getting a mortgage in Spain may be a frustrating and complicated procedure. All of this can be stressful, especially if you don’t end up getting approved because you don’t satisfy all the criteria for the mortgage to be approved with that bank in particular.
This scenario occurs more frequently than it might first appear, primarily because customers go to their trusted bank and do not always select the choice that best meets their needs or because they are seduced by alluring mortgage offers that do not always deliver on their promises. In most cases, they approached the incorrect bank to submit their application.
The loan-to-value ratio is the portion of the property’s value (before taxes) that the bank will finance. Mortgages for Spanish citizens may be up to 80% of the selling price or appraised value. However, non-residents or foreigners will only be offered 60% or 70%, depending on the bank, the type of property, your financial situation, etc. Additionally, non-residents will pay higher interest rates and shorter loan durations.
This loan-to-value ratio is calculated on the value of the property as stated in the cadastral document. It is important to keep this document up to dated if we need to ask for a mortgage. We can help you to do this by performing a property conveyancing survey and the paperwork to change the cadastral value if required.
Some banks may offer 100% mortgages for repossessed Spanish houses that they advertise themselves.
There are financial reasons, particularly for real estate above a certain threshold, where you often have to pay wealth tax annually.
The wealth tax is more than twice as high in some parts of Spain as it is in other parts because each autonomy may use different exemptions and deductions, establish various tax rates or completely avoid the application of the tax, as is the case with the wealth tax in the Communities of Madrid or Andalucía, where there is a 100% bonus deduction for this tax.
Just like Wealth Tax, whether you are a resident or a non-resident, you will have to pay Inheritance and Gift Tax. The taxable assets for these taxes are the actual worth of the assets minus deductible debts and expenses, such as mortgages.
Given that mortgages are seen as a loan and lower the taxpayer’s net worth, they can be used to lower both the wealth tax and the inheritance tax. Because of this, getting a mortgage to buy a property in Spain provides advantages when it comes to taxes.
Maintaining liquidity and not locking your money up in one asset makes sense while investing your money in other sectors that produce higher returns. Diversifying your investments across a variety of asset classes is advised by experts to reduce portfolio risk.
Once the property has been bough using a mortgage, the financial investment can produce higher returns if one decides to let the property, i.e. A buy to let situation. Hence the importance of location when choosing the right property. Spanish banks do not include rental revenue to be made as part of the initial evaluation of your risk assessment, so take this into consideration when drawing up your financial plan.
Investing in Spanish residency is another reason to get a mortgage. The Golden Visa Program launched in 2013 is the quickest residency permit to enter the EU Schengen region with minimal renewal costs that allows you to buy any type of property. You must make a minimum equity investment in the property of €500,000. So, for instance, a purchase of €750,000 with a mortgage of €250,000 would be acceptable for the Spanish Golden Visa application.
Coming up with the significant deposit that is typically required is for many individuals is the largest barrier to purchasing a home in Spain.
As Spanish banks normally lend up 60% to 70% of a property’s purchase price, buyers must come up with the remaining 30% to 40% plus roughly 10% in other expenditures (taxes and fees). Finding this money might be challenging, especially if you’re purchasing an expensive piece of real estate.
The chances of qualifying increase if you can demonstrate that you consistently earn an income and spend less than 40% of its managing obligations like loans and other mortgages in your country of residence.
Although the legal age in Spain to obtain a mortgage is 18, most banks will not give mortgages under the age of 25, where solvency can be proven.
This is based on data from your credit reports every time you have borrowed and paid back, including the length of your credit history. It ranges from 300 to 850, 800 and above being the excellent score. Although a good credit score does not guarantee the success of mortgage application, it does increase the chances.
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Fixed Rate Mortgages are mortgages where the interest rate remains the same for the duration of the mortgage’s repayment tenure. As a result, during this time the borrower is always aware of the monthly instalment due.
Variable Rate Mortgages are based on a fluctuating indicator, typically the Euribor. Every six to twelve months, the interest rate is typically updated to adjust the reference rate.
Mixed Rate Mortgages combine a fixed rate with a variable rate that is based on the Euribor. The fixed rate is used for a set amount of time (often half of the amortization period) and then the variable rate is applied after that.
Green Energy Mortgages for energy-efficient homes and structures. However, the property needs to be brand new and adhere to higher-than-average market-level sustainability standards. A+, A, or B energy ratings are what buyers should seek for.
If the home is eligible for a green energy mortgage, the buyer will benefit from better financing terms, such a lower interest rate. Green mortgages are currently available from most of the major Spanish banks.
This sustainable financing program has been offered by the Spanish Government since 2019 and it may be advantageous to homeowners who want to borrow money for green upgrades. New green and sustainable loans are available to people and condos engaging in building repairs from the European Investment Bank (EIB) and Unión de Créditos Inmobiliarios (UCI).
Apartments, villas, townhouses, and even rural properties are among the many types of property that Spanish banks are often ready to give mortgages on. It is crucial to remember that each bank has its own policies on the kinds of assets they are prepared to use as collateral for loans.
A lot will depend on the applicant’s financial status, the particular property, and whether or not it has any legal concerns. Rural properties, plots of land, and commercial properties are often tougher to qualify for.
The Europa Press data agency, EpData, states at 2.96 the interest rate for fixed mortgages and 2.7 for variable mortgages. Interest rate for both types have and are still growing, on and off, since January 2020. This has caused an increased in demand for fixed mortgages that now constitutes 68% of all mortgages signed in Spain, the highest percentage ever. The number of mortgage concessions dropped 2% from last year.
Your chances will be better if you apply early in the buying process and have a reliable monthly income. You should be able to establish solvency, proving that the repayments are no more than 35% of your salary. Banks will also consider other factors such as debt repayments, including credit cards, vehicles, home improvements and your credit score.
Ask the bank if by using direct debit for payments or contracting insurance or financial products such as life insurance, credit card insurance, will grant a reduction in the interest rate.
Mortgage conditions such as applicable interest rate and commission for early cancellation
Ask the bank if by using direct debit for payments or contracting insurance or financial products such as life insurance, home insurance, credit card insurance, will grant a reduction in the interest rate.
The costs of buying property in Spain are not just the property price and the mortgage fees, there are also taxes, notary and legal fees, etc. We can help you prepare financially with an accurate cost estimation that will help you determine the required loan for the mortgage.
| Based on a 200,000 euros property | RESIDENT | NON RESIDENT |
| DEPOSIT | 40000 € | 60000 € |
| DURATION | Up to 40 years | 15 to 20 years |
| LIKELY OF APPROVAL | 70% | 60% |
| TYPE OF MORGAGE | Fixed, variable, mixed or green | Likely fixed |
| AVERAGE INTEREST RATE | 2,60% | 4% |
It takes 3 to 4 weeks for simple acquisitions, i.e., homes free of debt, with all the necessary papers in order and finance already secured. For more complicated transactions like no mortgage or no conveyancing or if you are purchasing Bank-purchased Spanish real estate, it takes between 4 to 8 weeks. Mortgages that take more than 8 weeks are usually because they are improperly registered or involved in divorce or inheritance proceedings.
Generally speaking, you shouldn’t expect to qualify for a mortgage in Spain after the age of 75. If you’re 65, the longest mortgage term you can typically expect to be provided is 10 years. However, if you want more time than this, a specialized mortgage broker may be able to provide the assistance you require.
Spanish banks will require between 40 and 30 per cent deposit on average for non-residents, between 20 and 30 per cent for residents. Of course, this varies from bank to bank and depending on your financial situation.
You should budget between 12% and 15% of the purchase price for taxes and other expenses.
If you purchase a newly build property you will have to pay VAT and Stamp Duty, if you are purchasing a resale home you will have to pay Transfer Tax.
