Banks in Spain and offshore lenders provide mortgages for non-residents of Spain using the Spanish property as security. Standard loans to security are 70% for non-resident mortgages and are always linked to the valuation of the property in Spain not the purchase price. It is possible to obtain 80% loan to value but access is limited, you will pay a higher interest rate and will be expected to pay a one off premium for a mortgage indemnity guarantee (MIG) by the provider of the finance in Spain.
Most Spanish mortgages whilst linked to a percentage of valuation cannot exceed the price declared on the valuation title deeds (Escritura).
Finance in Spain is predominately linked to a variable rate and on a repayment basis. Spanish variable rate products are generally linked to a yearly Euribor (European inter bank offered rate) and your interest rate will be reviewed yearly. The interest rate for the first twelve months is determined by the Euribor at the month of completion plus the fixed margin above that which your selected Spanish bank is charging. Some offshore banks can provide mortgages in Sterling secured against your Spanish property purchase, linked to the bank of England base rate.
There is limited access through banks in Spain to interest only mortgages and fixed rate mortgages including a Flexible mortgage plan fixed rate, unlike the UK tend to be significantly more then the prevailing variable rate and the fixed term is generally the total term you can hold the mortgage for. Fixed rate mortgages in Spain are available for up to 15 years.
Because of the legal process of securing a loan in Spain, it is more difficult and costly to make any changes to your Spanish mortgage post completion. Raising funds against an unencumbered Spanish property, releasing further funds, or changing the terms is controlled by the bank of Spain and further tax, bank, and notary costs will apply.
Under current Spanish legislation it is advisable to raise the maximum funding you require for your current and future needs, as any changes at a later date may not be possible and will be costly. Lender, products and rates need to be carefully selected to ensure they are the most suitable for your needs. Lender and product hopping, which is now standard practice in the UK, is not currently feasible in Spain.
Spanish mortgage terms range from 5-30 years and are dependent on age and the Spanish finance provider selected. Most Spanish banks will look for the mortgage to be completed by the age of 70, but it is possible to obtain a mortgage in Spain up to the age of 85 as long as your age at the time of application was under 65.
All banks in Spain charge an arrangement fee for dealing with your mortgage, bank opening fees are not payable up front and do not apply if you decide not to take up their offer of lending. All other costs in relation to the Spanish mortgage deed, including mortgage tax and registry costs and some of the purchase deed costs are deducted from your gross mortgage advance; it is not possible to add your costs to the mortgage unless your valuation level allows you to. It is important to check you have accurately assessed and accounted for all expenses, to assure you are not left short of funds for completion.
Allow at least 12% of the purchase price to cover all costs in full, and make sure you are made fully aware of the provision of cost for completion.
The benefits of raising finance in Spain are low interest rates and protection of your assets in the UK, all alternatives however, should be fully understood before making a final decision.