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How much can I borrow?
The percentage of the property cost that is mortgaged is known as the Loan-to-Value (LTV) percentage. It’s based on the lower of valuation or purchase price. For non-residents (who don’t pay tax in Spain) the maximum LTV is 60-70%% but depends on property price and financial profile of the buyer. For fiscal taxpayers the maximum is 80%.
Can I afford it?
In terms of what you can borrow, the banks consider your Debt-to-Income ratio (DTI). They will require that approximately one-third of your net monthly income covers your existing debts including any rent you might pay plus the new Spanish mortgage.
What other costs must I pay?
Fees and taxes relating to the property purchase and the mortgage set-up are generally 9 - 13% of the property price, depending on the region of Spain. The buyer generally must prove they have these funds before the mortgage is agreed.
Will I be approved?
It’s advisable to get a mortgage approved in principle before starting the purchase process. This will confirm the upper limit of the price range in which you search and can put you in a stronger position when negotiating the property price; the vendor will know you are serious and can move quickly.
What type of mortgage? Fixed or Variable?
Spanish banks usually offer a mortgage rate related to the European base rate the Euribor (e.g. Euribor plus 1.5%). The percentage added to the Euribor depends on various factors, mainly the LTV, the income/debt profile of the client and the term of the mortgage. The monthly payments on a variable rate mortgage will go up or down according to movements in the Euribor. Fixed-rate mortgages are also available for the whole term, usually offered at a higher addition to the Euribor but with the certainty that repayments won’t change.
Buy-to-Let? Interest Only?
Currently these types of mortgage that are common in the UK and other countries are not yet offered by Spanish banks. If you plan to rent out your new Spanish property, potential rental income won’t be considered in your DTI calculation.
How to apply for a mortgage?
While it is possible to walk into a Spanish bank branch and apply for a mortgage, you are likely to get a better deal by applying via a licenced broker. They will have access to better deals than are on offer in the high street and will know which banks are best suited to a buyer’s financial profile. They can help with presenting the financial documents required and are permitted to keep the buyer updated throughout the purchase process.
Which broker to use?
Property Sales Mar Menor has chosen to collaborate with Mortgage Direct over other brokers/intermediaries. They have been operating in Spain since 2006 and since then have cemented their place as the leading independent broker in Spain. They were one of the first brokers to achieve the Bank of Spain’s official licence (introduced in 2020), are completely independent and have a wealth of experience in a market where contacts are everything and premium service is key.
The mortgage process
Case assessment - Mortgage Direct will invite you to share your financial details via their online Affordability Check process. It’s designed to ask all the details needed to assess your case but you can also send additional information by email or discuss anything that’s unclear in your first conversation with the adviser.
No-obligation quote
Once assessed, if you qualify in principle for a mortgage with one of Mortgage Direct’s advisers, you will receive a no-obligation quote. There is no fee for the advice given or for the quote. There is no obligation to proceed with an application. The quote outlines the terms of the mortgage and what fees and taxes will be payable.
Administration fee
If you decide to proceed with a mortgage application an administration fee is payable. This comes with a money-back-guarantee if Mortgage Direct is not able to secure you the mortgage. It can cover multiple applications with different banks or for different properties. It does not have an expiry date.
Supporting documentation
Your broker will advise what documents will be needed to support your application and will discuss the opening of a Spanish bank account with the proposed lender. You are advised to appoint a lawyer before signing the reservation contract and paying the deposit. You will also need to apply for an NIE number (foreigner identity number).
Approval
On the strength of the documentation provided, the selected bank will approve or decline the mortgage subject to valuation.
Initial Approval Fee
At this stage Mortgage Direct will inform you of the Initial Approval Fee that is due before the valuation is instructed. This is a fixed percentage of the mortgage amount with a minimum amount.
Valuation
The proposed lender will require the property valuation to be carried out before they give the formal approval of the loan and they will usually select a company at random from their panel of independent valuers although under the new legislation, the client has the right to select their own company (approved by the Bank of Spain). The valuation fee must be made before the valuation can be instructed. If the valuation is suitable, the bank will confirm the conditions and will then liaise with you, the agent and both lawyers to calculate the funds that must be made available in your account. Once the funds are in place, the arrangements for completion can be made.
Completion
Completion takes place at a notary office and you or your legally appointed representative must attend. After the deeds have been signed, the cheques are distributed, the keys are handed over and the mortgage process is completed.
Keeping you informed
Your Mortgage Direct broker will be available at all stages to help you understand the process and to keep you updated about your case. As holders of the Bank of Spain’s official broker licence they are permitted to liaise with the lender on behalf of the borrower. Unlicensed brokers may only introduce you to the lender and must cease their involvement at that stage.
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