The Ultimate Guide to Spanish Mortgages For Non Residents

No one wants to buy a property at the ‘wrong’ time, so one of the first questions anyone should be asking if they are contemplating purchasing a property in Spain is “what is the current Spanish mortgage market like?” Knowing this will help you to understand the costs involved with paying off a mortgage – and, perhaps, the likelihood of you making a solid investment choice.

Right now, we believe that there has probably never been a better time to get a mortgage in Spain. The mortgage rates are currently just a shade above their all-time lows because of several things that have happened. The main thing to note is that the 10-year Spanish government bond yield, which indicates how much the government in Spain pays to borrow money over each decade, fell in the winter of 2020 to its lowest level – ever at 0.05% and now stands at 3.31% after an increase in 2022..

Even though the rates are rising rapidly, they are reaching a level that was considered a normality before the all-time historic low level we witnessed for a couple of years. They are still quite low and more importantly fixed for the whole duration.

There are a couple of reasons why so many people are on the lookout for a Spanish mortgage for their property purchases in Spain. The financially-savvy ones quite often pursue this route even if they can afford to actually buy outright in cash:

Spain competes with France for the title of the most visited country in the world and is also one of the most popular destinations for retirement. The main reason for this is its varied mix of geography. From warm beaches and effervescent cities in the south, to snowy mountains in the north. There really is something for everyone.

Because of this variety of geography and the living styles that come with each, everyone has a different reason for settling in a particular spot.

When it comes to choosing the mortgage, one of the key ways Spanish mortgages differ to those in the UK is that you can fix the rates for such incredibly long periods. How long? The norm is for 15-25 years. This means that with rates currently being so low, non-resident buyers can secure amazing long-term value through their mortgage in Spain. SPF’s job is to help you find the right loan for your property. We don’t do the house-hunting bit: that’s your domain. But no matter where you settle on in Spain, we can help.

Quite simply, the Spanish do things differently. This is especially evident in the lending sector. Unlike British banks, whose norm is to offer fixed terms of 10 years or less, the banks in Spain offer long-term rates that are fixed for the entire term of the mortgage. It sometimes seems too good to be true to British buyers, but it’s just the way things are done in Spain. And it all means that the financial system and property market both benefit from security and stability over the long term. 

Both domestic and international buyers are able to secure low-rate, long-term fixed mortgages over 15-25 years. Because of this, a buyer will know exactly what their mortgage cost will be, month in, month out – all the way until the mortgage is paid off. The buyer, therefore, gets some serious peace of mind (and considerable financial foresight). The same could be said of the banks providing these products.

Allow us a brief interlude – it’s quite interesting! – to explain why Spain currently has such incredible mortgage rates. Since the Nineties, when interest rates were most recently at what you might call “extremely high” levels, the Spanish mortgage market has been centred on long-term mortgage deals which offer a level of protection for the person who has taken out the loan. It is a pretty everyday occurrence for a Spanish resident to fix their mortgage payments for 20 years and to then see that loan through to the very end without ever remortgaging. Non-residents are also utilising this great long-term value when looking for mortgages for a second home.

Continuing with the theme of security, a variable rate mortgage in Spain often offers the flexibility to increase the term/duration of the mortgage in order to bring down payments. Some banks will also cap any increase in monthly payments to the rate of inflation.

Because of the great deals they offer, Spanish banks are pretty cautious. Only in very rare cases will they allow a borrower to take on a mortgage which would increase their total monthly expenditure commitments past 40% of their net income. This formula should mean that borrowers are left with sufficient income to live on. The banks, in turn, know that because the mortgages are either capped or fixed, they can feel pretty confident that borrowers will not default.

This rather responsible approach to lending means that 70% loan-to-value is still achievable from a range of banks in Spain – for both Spanish nationals and European non-residents. Some other lending criteria may, however, apply (such as banks making certain loans only available to existing homeowners or people with a certain level of savings). Minimum income criteria are also the norm.

The bank will take a ‘charge’ (a guarantee, basically) on the prospective property that you want to buy – the details of which will be outlined in the loan offer. The loan will usually be what’s known as a recourse loan – what this means is that in case of default, the bank will take the property as security. If the bank has to sell the property and this results in negative equity, there is a chance that the Spanish bank may pursue the borrower’s assets in their home country. No one likes it when this happens, not least because the process of forcing a sale in Spain can take more than two years (and is time-consuming/expensive for the lender). This is one of the main reasons the banks are so utterly focused – some may say ‘strict’ – when asking for evidence of your income and assets at the very start of the application process.

Next: ready to ‘level up’ now that your brief history lesson has been completed? There’s no better place to begin than with the question that everyone wants to know: how much will a bank in Spain be prepared to lend you?…

The big question on everyone’s mind when they start scrolling through Spanish property websites is: how much can I afford? The question that follows is very often, “How much will the banks lend me?” Knowing the answer to these is vital to everything that comes next, and right here we’ll talk you through what the banks will want to know – so that you can work out where you stand.

We suggest two important steps before seriously starting on your mortgage journey: the first is to read this guide (it should take no more than 90 minutes or so). The second? We recommend that you talk to a professional Spanish mortgage broker who will ask a handful of important questions in order to establish your eligibility across not just one but a number of different banks.

Each of them will have different underwriting criteria – not to mention varying products – so letting a broker cast an expert eye over what you are hoping to achieve will help you to better understand your options. It has to be said that Spanish banks have a slightly annoying reputation for indicating that everything is fine at the beginning of the process only to experience a sudden change of heart at the last minute. This, of course, sometimes leaves would-be borrowers very frustrated and scratching their heads as the purchase deadline approaches.

We’ve heard of too many cases like this, and we do everything we can for our clients to reduce the chances of it happening to them.  Specifically, we aim to reduce the risk of wasted time and money by keeping a sharp eye on the ever-evolving banks’ criteria – meaning we can then seek out the most appropriate offers for each client, based on our experience of the current market conditions.

Please note that as brokers we do not carry out UK credit checks, but we are happy to give you a decision in principle. Once they receive your mortgage application form, the Spanish bank you’re hoping to borrow from may carry out of their own credit check – or ask that you supply the results of one.

As a general rule of thumb, you can borrow five times your individual or combined (spouses/ partners) net income if you’re looking to secure a repayment mortgage in Spain. You’ll first need to subtract your existing mortgages’ outstanding capital from this sum.

With interest-only mortgages, things are slightly different. You can actually borrow 10 times your net income, less outstanding mortgage balances. There is, however, a large ‘but’ to contend with: in order to obtain an interest-only mortgage in Spain, you must have net assets (outside of your main residence) which at least equal the value of the mortgage. If your net income is 50k and you have no existing mortgage commitments, you can theoretically borrow 500k on an interest-only basis… but only if you have 500k in savings. In fact, because of this, interest-only mortgages are difficult to come by in Spain unless you are using a private bank (more on this later).

The above, as stated, are merely rules of thumb – the banks look carefully at each client to see what they think they can afford. Banks also have different ways of measuring these things. So whilst the above is an interesting, back-of-an-envelope starting point, it is worth contacting us for a free consultation.

We have created an easy-to-use mortgage calculator here so that you can check how much you can afford to borrow in Spain. It will help you to see your debt-to-income ratio, which we’ll explain next.

What we are looking to see is if your existing monthly payments for loans and mortgages exceeds one third to forty per cent of your net monthly income (the lower the amount the more money you theoretically have to pay off a loan – which is what the banks want). The debt-to-income ratio is calculated by dividing your outgoings for debt payments by your net salaried income or net profit after tax from self-employed income.

For example, if you earn the equivalent of €3,000 per month after tax, then a Spanish bank will not allow the total payments for your existing borrowings and the future mortgage to exceed €1,000 per month for a second home – €1,000 being 33% of your gross monthly income. As just stated, this can sometimes be nudged up to a maximum of 40%.

Formula: (annual gross income + 80% of rental income) x 33% / 12 – what you pay already in mortgages and loans and rents = what is left for you to spend on the Spanish mortgage.

Not so great with maths? Call us and we’ll walk you through it.

Rule of thumb:

For a repayment mortgage over 20 years, for every €100,000 that you borrow you will pay the bank roughly €500 a month.

For an interest-only mortgage, for every €100,000 borrowed it will cost roughly €250 a month.

How is rental income considered for the debt ratio in Spain?

When calculating affordability, 80% of the rental income associated with your existing property investments is taken into consideration by the lending bank. The banks sometimes deduct the rental income from the mortgage payment – which works to the borrower’s advantage. More conservative lenders, though, may simply take existing rental income and add it to the borrower’s main income. This would effectively mean that only a quarter of the rental income is taken into consideration when calculating the debt ratio. Knowing subtle differences like this can make a big difference to your chances of success when applying.

If I want to rent my new Spanish property out, how will that affect the debt ratio?

Even in Anglo-Saxon markets, where buy-to-lets are usually seen as a standalone investment, things are changing: the world is moving closer to the Spanish model where there is no real distinction between the investment and the borrower’s personal income situation.

There is a positive to be gleaned from this: all Spanish mortgages work both for second homes and for rental properties. 

Is there a downside? Yes: in most cases, the rental income from your new property in Spain will not be taken into consideration. This can really take the uninitiated by surprise – and it means that a borrower’s full profile (i.e. full picture of their financial situation) is required when considering a property purchase in Spain.

Lots of people are interested in buying a commercial property in Spain – whether that’s an equestrian centre, a small hotel or a café. Unfortunately, these are much harder to finance by the average, everyday Spanish bank because they are considered to be commercial activity… and, therefore, require a professional loan for businesses. One possible getaround is if you plan to convert the property – or it is not readily apparent that the property is actually a commercial property. 

But don’t panic! If you’ve settled on a dream home that you plan on running as a business, we can often find a way to make it work. We’re just warning you that applying for a mortgage to run a holiday home complex in Valencia will be met with blank stares at the average Spanish high street bank.

The main list is as follows – it’s always best if everything can be clearly evidenced on a tax return.

– Salaried income

– Dividends with a three-year track record

– Other regular income from investments

– Income from partnerships

– Pension income

– Rental income with tenancy agreement

Payments for loans, personal loans, car loans, mortgages, alimony, credit cards (unless cleared each month), HP agreements, insurance policies and rent. Interestingly, Spanish banks don’t take school fees into consideration when working out the debt ratio.

As a broker, SPF does not carry out credit checks at all. Spanish banks, however, ask borrowers to download their credit report where available as a way to cross reference outgoings. In addition, they’re thorough: they run a forensic check on each applicant’s income via their tax returns, employers’ letters, pay-slips, bank statements, rental agreements, mortgage statements and so on. They want to understand your financial situation in as much detail as they can before giving you access to their vaults (so to speak).

Spanish banks have a carved-in-stone way of doing things – there is very little chance of them being persuaded that missing document X isn’t important and that substitute Y is just as good: they want a set of very specific documents that will help them to move the application up through the approval process. As they are interested only in the status of you and your finances, we often call this ‘status-only lending’.

It completely differs to the approach taken by private banks – these lending institutions can take much more of a holistic view when considering your needs. Note, however, that private banks won’t work with everyone (they’re just not built to cater to the needs of the ‘average’ buyer), but if a purchase is over €1m, then the flexibility of a private bank which lends for property purchases in Spain can be a very interesting option.

Back in the 1980s, the classic Spanish mortgage would have been a 15-year repayment mortgage up to 60% to 70% of the purchase price. These days, however, a 20-year term is much more common, although Spanish banks are willing to provide a loan of 100% of the purchase price if, instead of paying the 30% into the property, the client  puts that amount in a savings account with the Spanish bank. This is more the domain of private banking, and our clients who go down this route are often able to access even lower interest rates.

The way the bank will manage these savings will vary from bank to bank. To help with decisions on how to invest this money, we always recommend using a financial advisor in your home jurisdiction.

The monthly repayment amount of your Spanish mortgage (in fact, any of your existing mortgages) is an important consideration for your new Spanish bank manager and will influence how he/she will lend.

The two main things to consider are the duration of the mortgage and whether or not the loan has been taken out on a repayment basis. The shorter the duration, then the higher the monthly repayment. The lowest possible cost will be if you were to take a mortgage on a part interest-only or full interest-only basis. Interest-only mortgages in Spain are not common, though – when they are available they usually require a savings account to be opened with the bank.

Below is a rough guide to the cost per 100k borrowed that we often use when doing a preliminary mortgage affordability calculation for properties in Spain

Cost per month per 100k borrowed

– 10 year repayment product          925 per month

– 15 year repayment product          650 per month

– 20 year repayment product         500 per month

– 25 year repayment product           425 per month

– Interest-only mortgage product   250 per month

These costs do, of course, vary according to the precise rate environment (and also if we have to include payments for a life insurance contract – more on this later). However, it gives us (and you) a good general idea because most years it doesn’t change much.

In Spain, there is a tendency for people to choose a repayment mortgage when financing their main residence. Interest-only options (when available) are usually reserved for high-value properties – and often involve a private bank. This approach helps to lower the borrowing risk on the property that you actually live in; it also serves to reduce the running costs on investment property – property you likely plan on selling after its valuation has increased. This certainly applies to speculative property markets.

Generally speaking, the Spanish property market is often seen as a long-term hold. Due to a history of ‘boom and bust’ property price growth since 2000, plus the availability of 20-year fixed-rate mortgages on a repayment basis, the majority of people opt for a repayment mortgage. Yes, there is a market for interest-only mortgages – especially among people who are expecting a windfall in the near future, and who plan to use these funds to pay off the mortgage when they become available.

A repayment mortgage comes with one significant advantage over an interest-only one: the certainty that it will be paid off at the end of the term (assuming you don’t default). An interest-only mortgage, of course, still has the entire balance left to pay at the end of the term. It is worth knowing that interest-only mortgages are famously difficult to refinance in Spain – nigh on impossible, in fact, unless a private banking solution is sought. If a client is unsure which way to go, experience has taught us to recommend a repayment mortgage – simply because it’s easier, and comes with much more certainty to it.

When considering how much to lend you, some banks will look at the assets a client holds before deciding to offer the loan. Many of them apply what’s known as ‘net asset criteria’ in order for a client to be able to access certain loan-to-values and products. Take an interest-only loan, for example: some banks may ask to see a net asset position of 120% of the loan amount.

To calculate net assets when applying for an interest-only mortgage, you take existing asset values – things like property you own or share portfolios – and then deduct all outstanding loan amounts. If the eventual amount is more than 120% of the loan amount that you are looking for, then the Spanish bank (or international private bank) will likely have no problem making the loan – although income criteria will still apply.

Other banks, however, may insist that you are already a homeowner to access a mortgage product, or that you hold 30% of the purchase price in cash before they will take you on as a client.

Whatever your situation, you will need to show that you have enough cash in hand to support the deposit and the fees – and prove that you have enough savings left after the purchase for a rainy day.

We probably shouldn’t generalise, but we have certainly observed some patterns. Whether we are working with a major company or a small, emerging lender, they can be almost painfully fastidious when things get to credit committee level. It is a rare day indeed that they will be willing to skip any part of the process – or to substitute one document that they require for another.

The way they look at things is like this: they have enough people for their standard offering, so why spend endless hours trying to approve something that deviates from the norm? If you work with a broker, however, you can expect them to have a few tricks up their sleeve when it comes to presenting applications that do veer off track a tiny bit in a way which will still be acceptable to the bank. So, dare we say: always use a broker!

Banks have what is known as an ‘age ceiling’ – and this may affect the amount you can borrow once you pass 45 or so. We’re not aware of any loans anywhere in Spain that allow loans to be completed after the age of 75 (70 is the norm).

This can have quite an important knock-on effect for certain borrowers. In some cases, the duration of the loan might have to be somewhat shorter than they would have preferred. Mortgage payments would go up accordingly… and this would then reduce the amount that can be borrowed.

Retirement and the potential reduction in income this brings is another factor that many banks will take into consideration. It can mean that either the bank requests that the finances pertaining to retirement are documented clearly, or it might mean that they impose a “haircut” of 40% on your current income situation. Which will also affect the eventual debt ratio.

When a bank is dealing with a joint application, it is the age of the older borrower that will be used when assessing what the maximum duration would be. There’s an exception, and that is when the income from the eldest borrower is not being taken into consideration. When it comes to paying the life insurance which you will normally have to pay to cover the loan, age is also a consideration.

These are very transparent and you can read more about our terms of business here (our service disclosure document). As brokers, our service is typically remunerated at around 1% of the loan amount. This fee takes into account the value that we add to clients when organising the mortgage and reflects the network of contacts we have created over the years – plus the costs of maintaining that network. It is also indicative of the large amount of time we put into each application – often well over 20 or 30 hours.

Importantly, we can usually save our clients money over the course of the loan because we are able to connect them to products with lower rates than they may have found themselves. Plus, of course, we help make the whole process as stress-free as possible – which can be worth its weight in gold when clients lack experience in working across cultures and borders.

In some cases – though, to be fair, not all that many – the bank will pay this fee to us. When they do, it makes our service free to use for our clients. Normally, though, our fees are charged direct to the client.

Whatever your situation and the products under discussion, a full range of options will be given to you – along with all fees and taxes that will need to be paid. We always aim to avoid any budgeting surprises.

The good news is that the affordability calculation for equity release or refinance mortgages in Spain does not change. Less good is the fact that it is actually really difficult to release equity from properties in Spain. Things change when we’re dealing with a private bank, though – assuming you have a minimum of €1m in cash with the bank in question.

When it comes to refinance loans, Spanish banks are rarely happy to extend the duration of the loan by much – usually an additional 25% or so at best. Let’s say you have a loan with a 20-year initial rate and it has 10 years left, then it is unlikely that the Spanish bank will be prepared to extend the term much beyond 12.5 years. All of which makes the whole notion something of a non-starter. When refinancing, your actual monthly cost wouldn’t decrease as much as you’d think, simply because the duration can only be stretched out a little bit. Worse – the costs to refinance – including things like the mortgage registration tax, plus any early repayment charges – are commonly in the region of 2-5%... so the new rate you are going to all this effort for would need to be at least 0.5% lower than your existing rate for this to make any financial sense at all. As all Spanish mortgage holders know, the most logical course of action when buying in Spain is to get a mortgage… and then hold it until it’s paid off.

Individual circumstances do change, though, and we’re always happy to help buyers who want to take a ‘non-vanilla’ approach to buying or refinancing to try and find a solution.

Next: we’ve covered a lot of the theory behind getting a mortgage in Spain, but what does it look like at a practical level? What are the steps? Do you need to go to Spain to meet important people in offices? Will your mortgage be approved in weeks or months? All of this and more is covered in our guide to the actual process of getting a mortgage in Spain…

If you’ve come this far, you’re clearly serious about buying a property in Spain – and why not? Think of the sun, the sand, the sangria. Before you get to the three S’s, however, there are the three P’s to get through: paperwork, paperwork and – you guessed it – paperwork. Luckily, we’re here to help…

It’s safe to say that the Spanish banks will have some practices and customs that you might find slightly odd or even baffling. Between the members of the Spanish Private Finance team, we have racked up decades of experience… and even we are still occasionally bamboozled by the seemingly nonsensical requests from the lenders.

We strongly advise clients to start the process early, speaking with a broker and then completing an application form so that a plan can be drawn up which will optimise all aspects of the mortgage. Or, if you’ve arrived at this part of our guide without going through the earlier information, take a quick look at the section on how to calculate your affordability for a Spanish mortgage.

It is highly recommended that you check your affordability as early as you can, because this will help you to start honing in on the right properties. From our point of view, completing this vital first step also means we can now start looking for the right bank for you.

Underwriting criteria

What might surprise you is that each Spanish bank has slightly different underwriting criteria. Because of this, there is no set list of supporting documents that is applicable to every bank. Some banks may also insist upon documents being certified by a finance or legal professional.

Whatever their (long) list of required paperwork, they will insist on a full set of documents to process your mortgage application. We’ve listed the most common items that you’ll need in this section and we advise you to start gathering them as soon as you can.

It is well worth considering right at the start of this process if you plan on holding the property in your own name or if you will purchase via a company structure. Spanish banks will lend to Spanish SL limited companies more readily than any other structure if they are made up of close family members (parents/children buying together – and also siblings, too, though not cousins or friends). A few words about some of the relevant tax implications can be found in the Spanish tax section.

Spanish banks do not lend to UK companies – so if you were hoping that may be an option prepare to be disappointed. Nor can a UK company be a shareholder for an SL, according to our research.

Please remember that the SPF are mortgage specialists and not tax advisors. As such, the above information is for informational purposes as a kind of ‘jumping-off’ point for discussions with a qualified professional. It should not be relied on without a nuanced understanding of your personal plans/circumstances.

These are as follows:

Proof of identity

– NIE number – usually obtained via a Spanish lawyer

– Certified copy of a passport for each borrower

– A second proof of ID (ideally a birth certificate or driving licence) for each borrower

– A utility bill (electricity, gas, water) that is less than two months old. Council tax bills are not acceptable as proof of address to Spanish banks

– Copy of marriage / divorce certificate

Employment Details

If employed

– Headed letter from your employer that details your professional status, length of service, gross annual income and bonuses covering the last 3 years

– The last 3 months’ payslips 

– The last 3 years’ P60s and tax returns

If self-employed

– The last 3 years’ tax returns 

– The last 3 years of the company accounts (showing profit and loss)

– An accountant’s letter that fully details your income for the past three years. This letter needs to cover your salary, any dividends you have received, plus information about any other income. From the company (as opposed to you personally), it would be good to have (in the same letter) confirmation of your business’ last three years’ turnover and net profit/loss. If your accountant was able to add a few words about the financial stability of the company and its ability to continue to support your income from its activity, then this would likely be well received by the bank. 

If buying through a Spanish company

– CIF number

– Accounts of the company or project of the company if the SL is being put in place

– RIB / IBAN (account details)

– Last 3 months’ bank statements 

Financial Details

– Last 3 months’ bank statement of all savings accounts

– Last 3 months’ bank statement of all current accounts 

– Copy of the most recent loan statement or the original offer

– Email explaining unusual, large transactions (and also significant regular ones)

– Last 3 months’ statements of your credit card bill

Property Details

The existing main property of the applicant 

– Signed tenancy agreement (if applicable)

– Title deed from the land registry, plus a copy of the most recent mortgage statement (or the original mortgage offer)

Investments property(ies) that the applicant owns

– Title deed from land registry

– Copy of the most recent mortgage statement (or the original mortgage offer)

– Signed tenancy agreement (if rented out). Plus any recent documents proving your rental income, such as a lease contract if you cannot provide a tenancy agreement.

The new property to finance

– Contact details of someone at the property (or estate agent) for the valuation of the property by the bank

– Copy of compraventa (contract of sale), signed by both parties

Other paperwork (if applicable)

– Builders’ quotes

– Architects plans and quotes for works

– Proof of insurance for each builder

– Architect contract

Spanish mortgage products

Mortgage products in Spain are designed to give the maximum amount of security to the borrower – because this is what the market wants. The net result is that the majority of loans in the Spanish mortgage market are on a long-term fixed rate or, less commonly, a capped rate.

Repayment mortgages

You generally pay a lot more for a repayment mortgage than an interest-only one because you need to pay the interest on the loan and also pay off a chunk of the capital every month. Given that Spanish mortgage rates are so low at the moment, the long-term value these represent can be substantial, especially when compared to the rates of some other European countries.

Quite often, repayment mortgages are known as ‘capital and interest’ mortgages. For illustrative purposes, the payment for €100,000 may be around €7,200 per year. This would work out almost double the cost of an interest-only mortgage. Repayment mortgages are usually the best option for main residences or for investments such as leasebacks, where the aim is to pay off the mortgage and/or enjoy the income they bring. Repayment mortgages – unsurprisingly, perhaps – are the most common mortgages in Spain, largely because they offer the most protection.

Interest-only mortgages in Spain

Interest-only mortgages are a completely different kettle of fish: as the name suggests (and as most people know), their big USP is that you only pay the interest on the amount you borrow. If you borrow €100,000 at a 2% interest rate, you will have to pay your lender €2,000 per year. After the end of the term (20 years, say), you will still owe every penny of the €100,000 you borrowed: to pay off this bill, you will either have to sell the property or find funds from elsewhere. What everyone hopes for, of course, is that the property will have appreciated over the 20 years of the mortgage term and you will have turned a tidy profit (whilst keeping your mortgage costs down).

Interest-only mortgages are popular with investors who are looking to make a return by selling the property for more than the purchase price.

Security

Obviously, the majority of borrowers (and, indeed, all lenders!) want security when it comes to their financial planning, which makes the long-term fixed rate our top product. It offers buys appealingly low rates for a long time, and is safe from market risks.

However, in order to avoid any early repayment fees, some buyers prefer a variable rate – usually, they also tend to view the chances of rates suddenly soaring to be low. Generally, this kind of borrower is expecting some sort of income boost in the near future and they plan on tapping into this to repay the loan.

Looking for something slightly different? There is an ‘in-between’ product that offers some security (exposure is limited because the rate is capped) whilst also benefiting from the advantages of the variable rate. This is known as the capped variable option.

Fixed rates

Most loans in Spain for Spanish properties are taken out on a fixed-rate basis. The fixed rates on offer are available over 10, 15, 20 and even 25 years, and the rate (the clue is in the name!) is fixed for the entire duration of the mortgage. This, of course, offers a high level of certainty in terms of the monthly payment. 

Variable rates

Some Spanish variable mortgages are capped, meaning there is a maximum rate that the mortgage can hit for a set duration. Many loans on offer today, though, are uncapped.

What’s interesting is that duration of some variable rate tracker loans are ‘elastic’ – meaning they can stretch the mortgage term by up to five years, which people may be inclined to do if rates increase so that their mortgage payment remains the same. This would be true even if rates increase by as much as 0.75%. It’s worth knowing that any increases to the mortgage payment are usually limited to the rate of inflation per year. This means an overall increase to the amount you pay of 2-3% per year. In many ways this is all moot: due to the current (low) fixed rates, Spanish banks currently offer very few variable rate options.

Making the switch from a variable to a fixed rate

If you do opt for a variable-rate mortgage, protection is offered by Spanish law in that you always have the option to contact your bank and make a switch to a fixed rate for the rest of the term. You may, however, have to pay a penalty fee to do so – and you won’t be able to revert to a variable-rate mortgage at a later date. These extra features offer a certain ‘peace of mind’ to prospective borrowers in Spain – but they do vary from bank to bank. We can help you to get to the bottom of all this when comparing the various offers on the market.

Good levels of security

These extra features offer peace of mind to the prospective borrower in Spain, but do remember that they vary from bank to bank. Our motto is “never take anything for granted”. Always make sure you have a good understanding of what is available.

The assembled documentation will be sent off by the bank to an underwriter who will then set about checking the affordability and generally reviewing the paperwork. Expect him/her to raise questions and ask for further clarification or documentation if they think it is necessary.

Once everything meets with the underwriter’s approval, they will send the application on to a risk committee and/or a compliance committee (it all depends on the bank). If it’s a particularly large loan that you are looking for, then the application may pass through several more committees before it gets to the final approval stage.

Purchasing through a company

People who intend on buying a property inside a company structure need to provide the name of the company, a CIF number (which is obtained through a lawyer) and possibly the draft statutes at this stage – again, different banks have different requirements. The loan can be approved with just the drafts, but there’s a final hurdle to clear: the mortgage offer will not be printed until the company has been finalised – along with a bank account for the company. This may (i.e. probably will) require a trip to Spain, so please bear that in mind.

The next step after the rate has been agreed and secured is to sort out Spanish life insurance – usually a prerequisite for all mortgage customers. It involves completing a medical questionnaire and, if you’re lucky, ends there – but equally it can involve you undergoing some tests and then waiting for the results. Once the rate of the insurance has been settled, it can be added to the mortgage contract.

Eligibility for the insurance 

Perhaps unsurprisingly, age is an important consideration when underwriters set life insurance rates in Spain. The younger you are, then generally speaking you’re likely to get cover with lower monthly payments. Older applicants? They have to pay more.

We’re often asked what kind of person is likely to be asked to undergo medical tests, and the answer is two types: people who have had medical problems in the past and those who are borrowing a large amount of money. That’s not a golden rule, but these two groups are more likely to find that the Spanish life insurance company will ask them to undertake some tests.

It is possible that you may actually be refused life insurance altogether if you have a history of serious medical problems. This isn’t necessarily the end of your Spanish property dreams, though, as it is sometimes possible to arrange a loan without life insurance. Another option may be to assign UK life cover – but this will certainly impact the number of mortgage options open to you. 

Spanish bank accounts – for individuals

This is a crucial part of obtaining your Spanish mortgage. The point at which you will need to open a Spanish bank account is typically three or four weeks after you’ve initiated the Spanish mortgage application process. Before you start, you will have to obtain an NIE number – which is your unique tax number for Spain.

It is generally a condition of the loan that you open a Spanish bank account. Once it’s up and running, you’ll likely find it really useful for all of your in-country financial affairs, too.

Opening the account

The steps you need to take to open a bank account in Spain are pretty painless, especially when opening one as an individual. You begin by filling in and signing the appropriate forms, which will likely be in Spanish (surprise, surprise!), but we provide English translations of them so that you can see what you’re doing.

In addition to a completed form – scanned in so it can be sent digitally – there are also some other documents required if you want to open a bank account in Spain:

– Your new NIE number

– A copy of your passport (must be valid!)

– A copy of your marriage certificate, if applicable

– A copy of a recent utility bill – which should be less than 3 months old

– Proof of income (such as tax document, accountant’s letter or last two pay-slips)

– The reservation contract/title of the property in Spain that you hope to buy

Once we have these items from you, we can work with the bank to open an account in as little as 48 hours (though sometimes it’s slightly longer).

But (and it’s quite a big but)… while the paperwork can all be sent digitally, to actually open the account most lenders will want you to visit the bank in person – specifically, the branch that will be local to your new property purchase. So have the suitcase on standby for a trip to Spain!

Joint accounts

This isn’t much more onerous than opening a solo account, but there is something to consider: If you wish to open a joint bank account in Spain you need to decide whether you want the account to be held as Mr and Mrs Smith or Mr or Mrs Smith. If it is the former, then both partners need to sign whenever you make a deposit or withdrawal. Plus, in the event of one partner dying, then the account will be frozen until the will has been proven. The easier option, in which either partner can sign and draw on the account, is to go for Mr or Mrs.

Banking hours in Spain

Spanish bank opening hours are surprisingly variable, and a lot has to do with where they are and the size of the  branch – a tiny bank in a one-horse town will likely have less customer-friendly opening hours than one in a major city. Generally, they open at 9am and close at 5pm, Mondays to Fridays. Some banks will open on Saturday mornings as well – and may open late on certain evenings. Don’t commit the expat rookie error and expect your bank to be open at lunchtime, especially in smaller towns. It can be frustrating to turn up and find the doors locked up – but you’re likely to get it wrong only once!

Opening a bank account for a company

This is less straightforward. It is, however, somewhat easier if the bank providing the loan is also opening the new company account. We can explain the process further by phone if the company structure route interests you, but be warned that if the company bank and the mortgage bank are not the same, then a trip to Spain is a near certainty.

Now that your Spanish bank account is open, the direct debit form for the mortgage payments can be filled in (at this point your life insurance should also have been sorted out). With all this in place, the bank will be ready to print the mortgage offer and to send it to you via courier (DHL, FedEx etc,).

The next step is to… wait. That’s because you have to wait 11 days before you can sign and return the mortgage offer – it’s a standard cooling off period and while it occasionally proves a godsend, it’s more often a bit of annoyance. Unfortunately this 11 day wait can’t be waived or avoided, although if you are buying through a company some banks will let you accept and return the offer the next day. It all depends on the bank – and there are certainly some people who don’t condone this because they feel that as there is a personal guarantee involved from the client (who are the guarantors of the company), then the full 11 days should be waited.

During the obligatory thumb-twiddling period that most people have to endure, it can be a good idea to start planning a trip to Spain to sign and complete the purchase and transfer your personal funds. There is another option – you may wish to arrange for a power of attorney to be completed so the Notario (this being the Spanish legal representative who has to be engaged for all property sales) can sign on your behalf. This, too, will need a degree of planning and sorting out.

Power of attorney

Affording your Notario power of attorney is a fairly easy task, although there is, of course, some admin work to take care of first. The Notario can arrange this power to execute the transaction once they have a copy of your mortgage offer. The paperwork they draw up – as well as the mortgage deed – will need to be completed in front of a public Notary in the UK, before going on to be “apostilled” at the Foreign and Commonwealth office to ensure the validity of the witnessing signatures. There are specialist services that can sort all of this out for you – just say if you need an introduction.

It takes a minimum of two or three days between the bank receiving the offer and then transferring the funds to the Notario. Just to be safe – delays can happen – it’s worth expecting this to take around a week.

The completion of a property purchase takes place in the Notario’s office – either with you being physically present or by the Notario acting alone with the requisite power of attorney.

The Notario will send you a detailed breakdown of all the funds which have to be transferred. 

The Notario’s fees for conveyancing will vary and will have to be added.

Mortgage-related fees 

When taking out a mortgage in Spain, you will have to pay mortgage registration tax – this varies depending on the loan amount and region, but as a rule of thumb will be around 1.5% of the mortgage value. Spanish banks will charge up to 1% as a fee to set up the loan, though generally the amount will be lower than this. Please note that it will not usually be included in the Notario’s breakdown as this is usually transferred directly to the bank by the buyer.

You will also incur (fairly negligible) fees with your new Spanish bank account: expect an annual fee of around €100. Spanish Private Finance charges a fee as specialists in securing and adding value to the mortgage process and this will be payable when you accept your mortgage offer. Usually, the combination of bank and broker fees does not come to more than 1.5% of the mortgage amount.

When the transaction is all completed and a glass of Cava consumed, the next thing on the agenda is your first mortgage payment. A date for this will have been set during the mortgage application. It’s worth pointing out here that quite often, the bank fees associated with the application will be taken with the first mortgage payment.

Neither Spanish banks nor laws are geared up to easily deal with the purchase by non-residents of off-plan properties in Spain. Unlike in neighbouring France, it is not possible for the transfer of title to take place in advance of a property being built. This does not give much reassurance to the buyer of an off-plan property – because the mortgage simply cannot be arranged in the months prior to exchange. Nor can you be certain of the loan amount and the conditions of the mortgage you’re hoping to acquire. The best you can hope for is a decision in principle – but this is not binding.

Self-builds

This is rather different to buying off-plan. With self-builds in Spain, the land is usually purchased in cash first. The banks will then lend up to 70% of the overall cost of land, plus construction costs. All construction and legal documents must be in place before the loan can be approved.

As there will be some sort of construction period during which the property is being built, you can ask for a deferral period – this means that, bank permitting, you will be allowed to make only life insurance payments until the property is completed.

The amount of interest that is accrued during this deferral period will be calculated on a pro rata basis, according to the sums drawn to cover the staged payments that are made during the construction. This is good news, as it means you may not have to make any full payments for your mortgage until you receive your first rental income payment from the property’s managing agent. Other options open to you during the construction period include starting repayments immediately or paying the interest during construction.

Next: if you have significant savings/assets and are looking at properties costing more than a million Euros, you might find that a private bank is willing to take you on as a client. There can be considerable benefits of pursuing this option, as we’ll discuss in the next section.

People sometimes baulk at the idea of private banking, having made the assumption it is only for billionaires who have an aversion to paying tax. This paints a grossly unfair picture of private banks – many are more akin to personal financial managers; small teams of experts who will lend to you at extremely attractive rates in return for you letting them handle your financial affairs. But – to be frank about it – they won’t work with everyone…

A private bank is an institution focussed on growing the amount of money that it manages through concierge-like customer service and investment excellence.

The bank’s key goal is to skillfully manage a client’s assets in order to generate returns and preserve capital.They do not engage in ‘anonymous’ high-volume mortgage lending (that’s the domain of your average high street bank); instead they prefer a more intimate relationship where trust can be established with a client. In many ways, a ‘holistic’ view is taken of each client’s distinct financial needs.

By offering such a broad view of the financial lives of their clients – people who have entrusted a portion of their wealth to them – private bankers sometimes act as a kind of family office. They connect the client with experts in tax and make other suitable introductions, depending on the client’s needs and circumstances.

They are attracted by the bank’s flexibility

Roughly 50% of Spanish property buyers who go down the private bank route for their mortgage are taking advantage of the greater flexibility that can be found when it comes to the lender’s underwriting criteria. The private bank’s ability to offer a more personalised approach – as opposed to retail banks’ ‘one-size-fits-all’ methodology – means that mortgages and loans can be obtained for individuals with even the most complex financial situations. However, it’s a case of quid-pro-quo with private banks: they will only bend over backwards for you if they have certain assurances that a wider financial relationship with you is forthcoming.

They are looking for innovative ways to optimisation their investment

A private banking arrangement for a property purchase sometimes offers that most tantalising of propositions: the ability to have your cake, eat it – and then get slimmer. Because they have such a strong relationship with their clients – and also the ability to work with a significant portion of their assets – the interest rates they can offer clients can be astonishingly low. Combine these low rates with not having to place any deposit down for the property and even getting 100% finance, and it can all add up to something that is very attractive to the buyer – not least because they can leave any existing investments where they are (and hopefully watch these quietly generate income to help cover the interest on the loan). And all the while, of course, they get to enjoy the benefits of property ownership at the same time.*

* Spanish Private Finance does not offer advice on investments or make any warrants as to the suitability of each private bank – or that working with a private bank will automatically lead to financial success. Our advice is always to keep funds in cash to support the loan. Any investment decision is made between the bank and the client.

European private banks are in the business of increasing the amount of assets they have under their management. As this is one of their main measures of success, they are always interested in meeting new UHNWI (Ultra-high net-worth individual) clients. These are people with investable cash or assets – not including property – of more than $30M. They’re also interested in wealthy ‘HNWIs’ who can place large amounts of money under their management. Naturally, the number of people around the world who meet this definition is relatively small, so private banks will often look to the future and start working with interesting individuals well before they reach this status. If they can help take them to the next level, everybody wins.

When speaking to their client about a property purchase, private banks will look carefully at the size of the deal (meaning the purchase price and the mortgage that is required), and will want some details about the assets the client will let the bank manage post-deal. In simple terms, private banks like lending to very wealthy people who give them sizeable assets to manage/invest in return.

Private banks will also carefully consider the ratio between the amount of assets and the loan the client is looking to take out. Banks across Europe are subject to the Basel 3 capital requirements which lay out in particular the Tier 1 capital ratio, which is explained further below:

– Core equity capital (cash, investments)

– Risk-weighted assets (mortgages, liabilities)

Basically, private banks are averse to entering into loans which will decrease their ratio, i.e. they don’t want to add a mortgage or a liability to their books without first receiving pledges over financial securities to offset this. This is why a Lombard loan (more below) can be so attractive: the higher the ratio of assets to loan you take, the more flexible they can be.

It is a loan that is secured (pledged by the bank) purely against liquid financial assets – as opposed to a mortgage loan secured against a real estate asset. When getting a mortgage from a high street bank, the 100k they lend you will theoretically be available to them – if you default – by reclaiming and then selling the property. With a Lombard loan, you give the bank the equivalent 100k to look after and they will lend you 100k (although, as you’ll see, 100k isn’t the kind of sum that will interest the average private bank).

As this route equates to very little risk for the private bank, the interest rate on this type of loan can be very low. One of the main attractions for people who opt for this type of loan is that it means a client’s portfolio does not have to be liquidated to pay for the property purchase. There are some other financial advantages as well: one of the most appealing is that interest can be offset against rental income. Another is that the loan itself can be offset against wealth tax to reduce it – or even to cancel it out completely.

When working with a private bank for the purchase of a property in Spain, there are two main options. However, it is possible to find a blend of both to attain the best value.

Option one: the client wants to minimise the funds transferred to the bank

Here, the private bank will take the property as collateral and give a lending value to it. 

If a client of ours states that this is their key aim, we will seek to find them a bank that will lend 100% of the amount required to purchase the property. Sometimes several banks will present themselves as possible matches – so we then look at which one will require the least amount of assets to put under management. 

Under normal circumstances, the minimum they will want to be given access to is 30% of the loan amount, although this can be reduced to 20% and sometimes even lower – depending on the deal. What’s interesting is that the more a private bank can see a potential for further development to the asset management side of the relationship, the more flexible they are likely to be. With private banks, it’s all about taking a view on the long-term.

Option two: the client is keen to minimise interest costs

This is where private banks really come into their own – in fact, it is probably their favourite type of lending. In cases of this type, the loan is fully collateralised with cash assets that are managed by and pledged to the private bank. The client would place the property (for tax purposes only) as security, but in fact the property is not even required because this type of loan could be made without reference to a property at all. 

In a Lombard situation, the client would place assets with a lending value of 100% of the loan amount – it’s worth bearing in mind that if these were equities, then nominal or “face value” of the equities might be considerably higher, possibly even as much as 200% of the loan amount (more on this below!).

Once the bank feels fully safe in its lending (and has made sure that the loan does not affect its Tier 1 ratio for Basel 3), it is possible for a client to access the best rates anywhere in the market. Private banks compete for each other to find wealthy new clients, which is why Spanish Private Finance will always shop around: our goal is to find out who is prepared to offer the best lending rates for the mortgage.

Typical rates will be a variable margin below 1%; on top of this will be the private bank’s management costs, which are also likely to be less than 1%.

When someone is investing in property, a term they are likely to hear is ‘lending value’ – specifically the lending value of the property. This is usually established by a surveyor. Buyers usually get a loan against this value, up to the maximum the bank will accept in terms of loan to value (LTV). If a bank has a maximum LTV rate of 75%, they will lend €750,000 against a property valued at one million Euros.

Private banks use a similar method – but it’s not quite the same, as they are lending against a portfolio of stocks, shares and bonds. Each of the different asset classes has its own lending value ratio or LVR – the riskier the asset, the less its value in the eyes of the bank. Private banks set their own LVRs, and cash, of course, is king. A breakdown of how most investment types are weighted by the banks is as follows:

The nominal value, also called the face value, is the amount of assets that a client actually needs to transfer to the bank.

Private banks are happy to mix and match – they can survey the entire portfolio and assign an LVR to each line.

For example, the bank wants 4,000,000 € of assets under management (this is the lending value). If the client wants the bank’s investment portfolios and the LVR for these is 80% (as per the table above), it means that the nominal value is 5,000,000 € (4,000,000 / 0.80).

A key question in finding the optimal relationship will be establishing the values each bank uses.

In the context of a property purchase, a private bank’s fees are as follows:

Property valuation fee

Once you have established a relationship with a specific bank, they will ask that the property is valued. You can select a valuer from a panel of experts that has been agreed by the bank. Please note that banks’ lists of approved valuers do tend to vary – and note also that the bank will want to instruct the valuer. They bank will send you the invoice for this. Costs of the valuation vary from 2,000 to 7,000 euros – depending on the specifics of property. Note: the fee is usually nearer to 2,000 than 7,000.

Bank fee

Your private bank will charge a fee of some kind to facilitate the opening of accounts and also to set up the loan – in fact across Europe, it’s normal to pay to open accounts even in a high street bank. These fees will vary from bank to bank and they may be described as ‘arrangement fees’ or ‘account opening fees’. In some instances, the bank pays part of these fees to the broker. In Spanish Private Finance’s case, this will be made clear in our client correspondence if it is happening.

Broker fee

For help in connecting the client with the right bank to match their precise needs (and then optimise the conditions of the arrangement), a fee will be charged by SPF that reflects the level of work involved. Most of the time, the total combined bank and broker fees for opening the account and setting up the loan will be somewhere between 1% and 1.5% (the latter figure being more likely if the case is complicated).

As we’ve already explained, one of the key motivators for a private bank is the possibility of increasing their assets under management – and actively helping clients manage their investments.

There are two main types of contract (also known as ‘mandates’) that clients can give to their private bank manager that will help him/her to manage these investments:

Discretionary mandate 

This gives the bank the freedom to buy and sell on your behalf whenever they deem it to be appropriate. You can choose between a conservative, balanced or aggressive investment approach, based on the risk profile you have agreed with the bank. A mandate such as this has an average cost of 1%. Naturally, the bank hopes to make significantly more than this for you in return for this service – though nothing is guaranteed.

Advisory mandate

With an arrangement of this type, the bank will provide advice and suggestions about what to buy and sell – and when to do so. This kind of mandate will either have an all-in cost – giving you freedom to trade as much as you like (the total fee may be around 1%), or it can be a lower ongoing charge, coupled with individual costs per trade.

Other charges

There may also be an admin charge every year for reporting and general management of the accounts. Expect also a custody charge for holding your assets. Typically, the range here is 0.1% to 0.3%. The custody and admin charges may, in some cases, be included in the cost for one of the above mandates. These fees become more important to understand fully if a client wants (as an example) half of their portfolio in custody only as a long-term hold, and half under management in a mandate.

This can be confusing to people new to the concept so please ask if you’d like more details.

Existing property

If the property you wish to purchase is already built, private banks will usually assign a lending value ratio of between 50 and 70% of the price of the property as defined in the valuation report. In most cases, everything is all pretty straightforward.

Off-plan and construction

Things are less black-and white when it comes to off-plan property. Simply put, most private banks are not comfortable lending on a property which is not yet built or is under construction. Properties that are undergoing heavy renovation work can be a problem, too.

It’s not hard to see why – the risk skyrockets when a client enters into relatively unknown waters. As a result, it is hard for the bank to establish a true value for the property. In such cases, a private bank will typically ask for additional collateral during construction – ideally a full Lombard loan that is secured purely against assets until the property is completed, surveyed, valued, a mortgage registered and an LVR assigned – at which point you can switch to a more suitable mortgage loan on the property (and reduce the amount of assets you had to pledge to the bank).

In some circumstances, there are options that do not require an initial Lombard loan and which allow construction to be financed up to 100% LTV, with 30% LVR in Assets Under Management. Let us know if you’d like to know more.

When working out your affordability criteria, a private bank is usually much more flexible than a retail bank. SPF clients who have a solid financial situation and sufficient assets can usually be matched up with a private bank that will be able to meet their needs.

Next: just when you thought you’d mastered everything there was to know about Spanish mortgages, we whip out a box marked “Danger!” But don’t panic – it’s just a list of surprisingly common things that can pull the rug from under someone who has entered into the property buying process without first doing all of their homework…

Probably the most common reason that Spanish banks refuse an application is that they simply don’t like the way you do business. More specifically, if your accounts back in your home country are regularly overdrawn (as shown on your statements that the bank will want to see), managers will sometimes refuse you a mortgage. Even when you clearly have sufficient savings to clear the balance elsewhere!

The only explanation is that this is a cultural thing: the Spanish don’t operate in this way and bank managers find it very hard to want to work with those who do. They want to deal with clients who can show that they are generating an income and managing their money – so if you are a habitual overdraft user, get out of the habit as soon as you can, ideally many months before applying for a mortgage. 

There are no credit checks in Spain as such, so in order to get a good idea of your creditworthiness a Spanish underwriter will check and trace all of your income and outgoings until they are satisfied. It is precisely why Spanish banks now often ask for a credit report from your home country – it all helps with the verification of your outgoings. Everything they ask for will require documentary evidence – and if you can’t oblige or try to swap what they want for something similar, you’re unlikely to make much progress. Things like income not being declared on a tax return, rental income only ever being paid in cash or a dearth of payslips can shoot down an application before it has got off the ground.

Spanish banks struggle to take non-salary income into consideration, unless there is a well-documented three-year track record. This means that bonuses from a new job or the first year’s dividends from a new company will not carry any weight with the bank when it comes to working out what to lend you.

There can also be issues when someone has sold their company and now has a large amount of income-generating investments to support the loan – but they lack a proven track record. Even though the assets are patently solid, a Spanish retail bank will likely say that they are not able to lend. All is not lost, however – if the property purchase price is sufficiently attractive to them (typically 1m+ Euros), a private bank may be interested in working with you. They can take a much more flexible stance when it comes to lending to people with less straightforward financial situations. Please see the private banking guide for further details.

Geography is occasionally of significance when people are looking to take out a Spanish mortgage. For example, self-employed Europeans can often obtain mortgages in Spain, but self-employed people from outside the continent can find it very difficult. It’s much easier, however, if your financial profile is crystal clear and, perhaps, audited by a well-known global company. 

That said, if you work for a big brand like Coca Cola anywhere in the world it is quite likely we can find you a loan. Please note: if tax returns are not available, income must be corroborated by a listed company.

As mentioned earlier, a private bank is better suited to the needs of clients who have a disappointing paper trail, but they will always require more than €500k to be placed with them so that they can manage/invest it on the client’s behalf. Often, they’ll actually want more than €1M.

You can read more about this in our private banking guide here.

This issue stems from European banks’ drive for responsible lending – plus Spain’s cultural focus on clients having enough savings to meet their financial obligations. So if you plan on releasing equity from your existing home to finance a deposit for a Spanish mortgage, for example, it will likely be flagged up, questioned and quite often lead to the application being rejected – unless it all happened months in advance of the purchase (though it could still be a problem). The same goes for withdrawing funds for a deposit from your company. If you do want to draw an extra dividend to help with a mortgage, try and do it well in advance – and, if possible, demonstrate a regular pattern (as opposed to suddenly pulling out a quarter of the total value of your business). Banks don’t like rollercoasters – unless they are flat.

Banks have long since discovered that when they allow someone to put every last penny they have into a property, these clients often end up missing mortgage payments pretty soon after. They want to take on clients who have plenty of rainy day funds left over after the property has been bought. We recommend 12 months’ payments (or €20k per 300k borrowed).

This can seem a bit personal, but it’s just business: Spanish banks are always looking at the security of the property and their capacity to sell it quickly if they have to call in the loan. This means that properties they view as being likely to take a long time to sell because there isn’t much of a market for them (these are known as “illiquid properties”) can be difficult to finance. That’s even the case when looking at an LTV of 50%.

How do you avoid buying the ‘wrong’ kind of property? Prepare for an uphill battle if looking at things like castelos – yes, everyone loves a castle but not too many people actually want to buy one – and extreme rural properties with many buildings, as these can be considered too commercial with too few potential buyers. Fishing lakes, as well. Sure, they might be the pipe dream of many international buyer – but they’re not something the banks are likely to want to back you on. If the property can realistically be viewed as a house plus a lake – as opposed to a business – you’ll stand a better chance.

When buying an off-plan property, it is essential that you check if the developer has all his documents and insurances in place – and that there are no issues with title. A lawyer’s help here is worth every penny! Without total confidence in the developer, a bank may refuse to finance your little slice of the development – which will be a problem if you have already placed a non refundable 30% deposit.

In large off-plan projects, banks sometimes turn down applications because they have already approved a certain number of other mortgages in the same development. In short, they just don’t want to take on any more risk. The number of properties they are happy to finance can range from a couple of units for some banks to as much as 10% of the whole development for others. In most cases when this happens, a client will simply have to accept their bad luck and move on to find another lender – so this is only really an issue if a client had found a specific bank with a loan they particularly liked.

Spanish banks can be surprisingly sensitive to political exposure, which means that diplomats and government officials can sometimes find it difficult to obtain loans. The same can be true of people who work for the United Nations, for example, if they have immunity from being prosecuted – it’s basically just a red flag that some lenders are not interested in dealing with. It works the other way round, too: some large accounting firms have a list of banks their employees can’t work with as part of their professional contracts.

If life insurance is required (as it usually is) but an existing medical condition or your age means that the premiums are too high, this can be a reason for a ‘no’ from the bank. If you’ve been flat-out refused insurance it can be a problem, too.

Due to FATCA reporting requirements, many of Spain’s high street banks just can’t be bothered to deal with US tax payers. Harsh, but true. We do have some solutions, but the box of tricks at our disposal is surprisingly small.

At the time of writing, Spanish equity-release mortgages are not readily available from Spanish retail banks. That’s because in Spain, there is a certain understanding that runs through both the property and finance markets which states that you buy a property with a mortgage, you keep that mortgage until you’ve paid it off in the time-frame you originally planned – and that’s it. Even refinancing and remortgaging are somewhat frowned upon.

Everything changes when dealing with seven-figure properties, however, as you’ll now pique the interest of private banks – who can be more amenable to their clients’ specific needs. This is because they view a mortgage as a way to begin a new relationship; one in which you let them manage a significant portion of your assets. There are still restrictions, though, and it is certainly much easier to release some equity if there is some kind of refinance involved. This could be from a shareholder loan, for example, or a previous mortgage on the property.

A large number of people who have bought property in Spain over the last decade will have witnessed the price of their property increase by large percentages. For those who released equity in the UK in order to buy a property in Spain, the gains will be amplified by the current low trading value of sterling.

Restrictions on use of funds

Banks usually won’t let you take money out against your property for any old reason: projects they consider to be acceptable for releasing funds from your Spanish property include:

– To improve existing properties

– To create financial assets that will be managed by the bank that is releasing the equity

Next: buying in Spain is almost always going to involve a significant investment, so it’s essential that you have an understanding of the Spanish tax system (as well as that of your home country) to avoid any unfortunate – costly – mix-ups.

You should always enter into the purchase of a Spanish property with your eyes wide open when it comes to tax matters. Taking the approach of, “It’ll be fine!” can turn out very badly indeed.

We always recommend that our clients seek out independent financial advice from a specialist who knows the ins and outs of both the Spanish tax system and that of their home country. When your investment is likely to be at least a six-figure sum and quite possibly seven, nothing could be more important to get right. SPF are resolutely not tax advisers, and the information below is intended as a guide only, based on our current understanding of the situation in Spain. 

As of 2020, there is a basic rate of 24% of the net rental income on a property that is to be deducted in Spain (if you are indeed renting it out, of course) and this rental income needs to be declared in your home country. Because of this, it can be advantageous to look into the idea of renting a property out via a company structure. This has a number of potential positives in relation to both inheritance tax and also reducing income tax payable on the rental income.

For property owned personally, the basic CGT rate in Spain is 19%.

Property Ownership Tax IBI (Impuesto Sobre Bienes Inmuebles)

This is an ongoing regional property tax based on the ‘valor cadastral’ which is usually lower than the purchase price. The current spread is 0.4% to 1.1% per year, depending on the region you are buying in. It’s broadly similar to the UK’s council tax.

Personal Income Tax IRNR (Impuesto sobre la Renta de No Residentes)

In addition to the IBI, if you rent your property out there will be income tax. But even if you don’t there may still be a tax of 0.5% of the valor cadastral annually.

From 2015, the tax rate is scaled from 0.2% to 2.5% (rising to 3.03% in Andalucia), depending on the total value of the worldwide assets (or assets in Spain for non-residents). 

There are exemptions from the wealth tax, and assets can be structured in a tax efficient manner. We reiterate that it is extremely important to take advice from a tax expert, as the rates in this guide cannot be relied upon for 100% accuracy – figures change and circumstances are different for everyone.

Real estate in Spain is subject to Spanish inheritance tax but, pleasingly, not the laws of succession for most countries that have a double taxation treaty for EU/EEA members.

Spanish inheritance tax rates as set by the national government are progressive and fall within the following brackets, based on inheritance amount:

• Up to €7,993: 7.65%
• €7,993–€31,956: 7.65 to 10.2%
• €31,956–€79,881: 10.2 to 15.3%
• €79,881–€239,389: 15.3 to 21.25%
• €239,389–€398,778: 25.5%
• €398,778–€797,555: 29.75%
• €797,555+: 34%

There are exemptions for property in Spain, so please do check with a specialist adviser.

We see many people opting for a corporate structure to optimise the tax situation in relation to their ownership of a property in Spain.

We would highlight that before reading the information below you should understand that this is just an overview of what we see: it is our own interpretation of the reasons why buyers make certain choices. We do not give individual tax advice, so please don’t make any decisions based on this information. Always seek advice from qualified professionals who know Spanish tax intimately – we can make some introductions if required.

Buying property in your own name

Whilst holding a property in your own name can be considered a tax-efficient option in Spain, doing so can make things difficult if you want to transfer shares of the property to children. Planning on renting the property out? Then it will be likely that there will be no income tax to pay in Spain… but the income will be taxed in the UK. You may be able to set up the purchase under the UKs ‘furnished holiday let’ rules – but make sure you investigate this fully first.

Buying property with a company

Conversely, for UK tax purposes it is opaque while being transparent for Spanish tax (so owners can use their personal tax allowances). So if a property is to be rented out the income is sheltered in Spain where there is little tax to pay on the income.This is because you can deduct the interest on the loan and also on a portion of the value of the property. Shares in the company can also be transmitted to children.

Next: common pitfalls! We’ve rounded up the seven most common…

Don’t fool yourself into imagining that buying in Spain will be exactly like buying the UK (or most other home jurisdictions). It just isn’t. The Spanish have a unique way of working. 

Get ready for paperwork on another level

You will quickly need to accept that all documents have to be sent and received in original, signed and initialled on all pages. Don’t even think about sending them with mistakes on or any crossings-out! Your bank will not be inclined to bend its rules for you or allow substitutions – so be prepared to smile and get on with it and submit to the whims of the bank.

What banks fear most is default, closely followed by negative equity and seeing clients place other assets at risk. If you default on your Spanish mortgage for long enough, then (after an admittedly rather lengthy period) the bank will call the loan in. They will present the case in court and, usually, go on to obtain permission to sell the property. If the property is sold, the loan will be cleared and the balance – if there is any – handed over to you. However, if the property sells for less than the loan amount, the bank may try to pursue you in the UK for the balance. They may not, however – and it may be possible to come to an agreement. The reason they can choose the former if they want to is that all mortgages are personal loans – and that means they can pursue you personally. This is even the case for a loan that has been made to a company. Because of this, the borrowers are normally also the guarantors for the loan.

Every Spanish bank manager knows that they can repossess properties if a client defaults – it’s one of the reasons they feel confident and secure enough to offer such low long-term rates. For the buyer, long-term fixed rates are excellent news – they have mostly shaped the whole Spanish mortgage market in a positive way. But occasionally, people want to refinance their existing loan – typically when they are hoping to improve on a loan that was fixed when rates were very high, or, perhaps, they want to borrow when an interest-only loan is expiring.

When buying a property in Spain, you can be sure that the system is fair. In many ways, it’s all pretty straightforward: you have your offer accepted, a non-breakable contract is signed – and this means you can be confident that you will acquire the property you agreed to buy. It is even OK to say that you will only buy on condition of being able to get the finance you need. So far, so good. However, when dealing with fast-moving markets where properties come in and out every day, you can be quite aggressively encouraged to sign without a mortgage clause by a seller who implores you that this is necessary to secure the property. This does happen quite often and isn’t necessarily an issue – so long as you go into it fully aware of the risks (and preferably have the funds to buy in cash). If you are searching for property in a fast-moving market, try to do as much as possible on the mortgage side before having found a property – that way, once you sign the sales contract, you just need to finish off the mortgage application rather than start it from scratch. Of course, sometimes this is easier said than done!.

A post-finance mortgage is one that you take out after having already made the purchase in cash. This is certainly possible in Spain, but it would be a good idea to get a decision in principle first before pinning your hopes on getting one. As a rule, you can usually get the same kind of conditions for this kind of loan as you would for a regular mortgage – but you do need to apply within six months of purchase. One issue with post-finance for new builds can be that somebody builds a property with cash but does not get all the requisite permissions/permits, which can complicate things enormously.

Potential fluctuations in currency should be something that no potential Spanish property buyer ignores. For example, if sterling were to fall further, then it would be more expensive to finance monthly mortgage payments in Euros that have been exchanged from UK earnings: the 100 sterling you are paying today could become 110 sterling in six months’ time to cover the same debt – though, naturally, sterling could rally, too. When it comes to selling, currency rates present another potential problem. If you bought for cash at 500,000 euros when that equated to £450,000 and then sold at a later date when 500,000 euros was suddenly worth £350,000, you’d not be pleased.

It is accepted by most people who know about such things that it is better – by which we mean safer – to have your exchange rate risk tied to the monthly mortgage payment than the value of the entire property. In other words, it would be preferable to pay 10% more for your mortgage payments every month than it would to be forced to sell (through a change in circumstances, for example) and discovering that the value of your property is 10% less than the mortgage used to buy it. As an aside to this, if you are to be receiving rental income in Euros then it makes sense to have a loan that is paid in the same currency. It lessens any exchange rate risk.

Right now, with the Euro historically quite strong (Feb 2021), it may be worth considering a mortgage in Euros, if possible, in order to delay the need to transfer funds to Euros until such time as the exchange rate is moving in your favour. This is not a recommendation, just an option, as rates go up and down.

Finally, a few words about the possibility of a lending rate suddenly increasing once the mortgage application reaches the committee stage. Most of the time, the bank would leave the rate as agreed – but don’t count on it. If your application has some slightly risky/unusual elements to it, or the bank feels that Spain is about to enter a rising rate environment, then the committee may opt to increase the rate. 

Next: now that you’ve been informed of some of the potential pitfalls, let’s change gear a little and look at some of the hidden advantages when it comes to buying a property in Spain.

Despite what some commentators have stated when rounding up stories about investments that have gone bad, we would argue that Spain is an attractive place to invest in real estate. It’s true that property values rarely tend to shoot up, but you can usually (note: we said “usually”) count on steady growth over time – plus there is a very advantageous tax situation.

When you combine this with the certainty of long-term, extremely low Spanish mortgage interest rates and a country that is so varied in terms of its geography that it offers something for everyone, we think it’s a recipe for a great investment that you can enjoy with friends and family (only our opinion, of course – nothing is guaranteed!). That’s our little sales pitch over!

Yes – it has been a familiar theme throughout this guide, but it really is something to shout about. For those who came straight here, let’s just say again that in Spain it is possible to fix your mortgage interest rate for 20 years. Unbelievable but true: 20 years! Some buyers are able to fix their mortgage at a rate of 1.5% for 20 years. In the UK you simply can’t do that.

OK, so interest-only mortgages are not exactly common in Spain, but if you can secure one you can fix the rate for many years, pay very little tax – and if you’re able to put down a 40% deposit, then you probably won’t have anything to pay for almost 15 years… because your (very low) mortgage payments should be covered by the income you earn from renting the property out.

Buy-to-let mortgages in Spain are available at some rather attractive rates when comparing them to the deals available in neighbouring countries. But don’t get carried away – always remember that, compared to the banks of some countries, the ones in Spain will always take a long and careful look at a borrower’s financial situation before approving a loan. As for the future potential rental income of the property, they’ll likely be underwhelmed by any grand claims you make – it’s all about cash in the bank and how risky they perceive you to be.

As a general rule when buy-to-let investing, it makes sense to look for a loan on an interest-only basis to lower the monthly cost… and to wait for the market to rise. At which point you would release equity and continue to build your portfolio. This isn’t always an option, however – a lack of interest-only mortgages in Spain and the reluctance of Spanish banks to refinance interest-only mortgages means that the more traditional way of buying in Spain is to get a fixed, long-term mortgage and hold on to the property. The upside is that you get to enjoy the benefits of selling when the mortgage is completed – or carry on renting it out and enjoy this mortgage-free income.

Everything changes when dealing with a private bank, because they are designed with individuality and flexibility in mind. If the aim for a client is to add value to a property and refinance, for example, then a private bank could be a good option – though they will have certain (high) requirements in terms of the expected wider relationship they hope to establish with you.

To add some chocolate to the churros, Spanish banks can only charge six-months’ interest on any sums you pay back early on the long-term fixed rate. So if you had a 2% fixed rate and wanted to clear 100k, you would just pay 1k in penalties.

Early repayment charges are limited to 3% of the amount paid off early. This may vary, however, should you buy using a company structure.

Next: you’ve almost arrived at the very end! Thanks for reading – we hope our Spanish property guide has proven to be enlightening and fueled your dreams for buying a home in Spain. Always remember that we’re here to help with any queries, and before we go, we thought we’d wrap up with some of our most common questions…

What’s the maximum I can borrow?

Most banks in Spain will lend 60% to 70% of the purchase price – though some private banks will lend 100% if your financial situation is appealing to them. These amounts do not include the purchase costs.

At present, all of the mortgages that are available are ‘status’ mortgages – this means that your personal status will be the main determinant when a bank is deciding whether or not to lend to you. As such, you should expect the bank to look at your income and outgoings very carefully. Banks will usually be fine with you spending up to a third of your gross monthly income (less any existing monthly repayments) on loans, but will baulk (or refuse the loan) beyond this. They will, however, take a percentage of your existing and future rental into consideration.

I am self-employed – can I borrow, too?

That shouldn’t be a problem. There are a number of ways to present your financial information to the bank – when working with SPF, your consultant will find the most suitable option for you. Please take a moment to peruse the list of documents that self-employed borrowers will need – and contact us with any queries.

Check the Ultimate Guide to Spanish Mortgages in Spain For Non Residents 2021 to apply for a Spanish mortgage.

What fees are involved in getting a Spanish mortgage?

There are several to be aware of: the bank, for example, will charge a set-up fee. Our lending panel (the selection of banks SPF work with) have rates ranging from 0.3% to 1% of the loan. This has to be paid when the deed of sale is signed.

The broker’s fee is another one. SPF charges a fee of 1% of the loan amount if we help a client through to successful completion. This is also payable at the signature of the deed of sale.

Then there are the notario fees: this is the equivalent of the UK’s stamp duty. It is between 0.76% and 1.5% of the mortgage amount. This is payable at the signature of the deed of sale.

All of the above costs are clearly laid out in our Mortgage Information sheet, which you will receive with your purchase guide from Spanish Private Finance.

Under what circumstances can SPF’s brokerage fee be waived?

Some banks actually pay us a fee – when a sale goes through – that is high enough for us to waive our own brokerage fee. Please note, though, that does not happen very often! Most regional banks don’t pay us anything (or a tiny amount) so we usually need to charge a fee. All fees will be properly displayed in the purchase guides and our Key Fact Illustration.

What early repayment penalties might I have to pay?

Early repayment charges are capped at 3% of the amount paid off early – though this can vary if you choose to buy through a company structure. To give you an example, for €200,000 early repayment, you will be charged €6,000.

Most of the time, there aren’t any repayment penalties when it comes to variable rate loans. 

Please make sure you’re happy with the information you’ve been sent that covers this when receiving your mortgage offer.

Should I use a bank or a foreign exchange broker?

It’s all down to personal choice, but not everyone is fully aware that there are some very interesting alternatives to using a bank when it comes to changing large amounts of money. A specialist foreign exchange broker can often save you time and give you a much better rate.

Banks will typically make up to a couple of per cent per transaction when changing money – meaning thousands, usually – whereas currency brokers, who operate specifically to help people transfer money quickly and affordably, can focus on securing you a better exchange deal. The benefits of using a currency broker vary, but you can usually get:

• Better exchange rates
• Faster transfers
• Low or no transfer fees
• Better customer service

We can make an introduction or two if you’re interested.

What are the advantages of taking out a Spanish loan?

In general, it’s all about better rates, which are often as much as 1-2% lower than comparable UK rates. As well as this, the interest on Spanish loans is tax deductible. For investment purposes, we’re firm believers that the exchange rate risk from sterling to Euro should be on the monthly repayment, rather than the whole value of the property – but it is, of course, your choice. As well as attractive rates, many Spanish loans are available on an incredibly long-term fixed basis – which provides security at a lower cost.

Has there been any change in the lending attitude of banks in Spain recently? 

Yes. Banks are basically becoming more cautious with their lending. We have had banks that we work with adding minimum income requirements. We’ve seen some stepping away from the non-resident market – and also putting applications for UK clients on hold. Things can be a little less straightforward than they have been. 

I see that my mortgage requires a collateral fund. What is that?

It means a selection of assets placed under management at the bank. This will be invested in various funds – including stocks, bonds and fixed-term deposits. Your risk profile will determine the precise asset allocation. Working with your adviser, you can choose from a selection of securities such as: 

– IE00B3XXRP09 Vanguard SP 500 UCITS

– FR0007063177 LYXOR NASDAQ-100 UCITS

– LU0616240585 AMUNDI BOND EURO AGGREGATE

The collateral you put under management is effectively ‘locked’ until the mortgage is paid off – but it can be reduced so long as the initial collateral-to-mortgage ratio isn’t affected. 

Why do Spanish banks require so many documents?

This is because Spanish banks don’t have a comparable credit check system to the one in the UK – so they need to manually check your income documents (such as tax returns), bank statements and more. They need a very clear and documented picture of your income and expenditure so that they are sure there is no hidden debt of any kind that could affect your ability to repay the mortgage.

What does the Spanish mortgage application process look like?

Well, as with every country, it is certainly a process – it can take anywhere from a few weeks to three or four months to receive a mortgage offer, with a lot depending on when you produce your documentation and how quickly we can achieve the final approval from the bank.

Once you have decided which Spanish mortgage is right for you, you will need to make a priority of sending us the required supporting documentation. When the bank feels it has done its homework and has a completed file, they will send you a final simulation that will give you a clear breakdown of what’s on the table, and then they will send the file to their lending committee to be approved. All being well, a loan offer will then be made.

Upon receiving the offer, you must wait a minimum of 10 days before accepting it (or rejecting it) – a “cooling-off” period. You have one month to accept the offer. After you have done so, the offer is valid for up to eight months, depending on the bank. You must complete the purchase of your property during this period. Extensions can be obtained in certain circumstances.

How long does it usually take to get a mortgage in Spain approved?

For a basic agreement in principle, we’re usually talking just a couple of days. To get the application officially approved by the compliance and risk committees, though, takes around 4 months.

What kind of payment options are open to me during construction of a property?

In Spain, most banks will offer you the option of paying interest only on the sums drawn down by the developer during the construction period. You’ll still have to pay life insurance, and the banks allow this period to last up to 36 months. Full payments on the mortgage can be deferred until all of the mortgage funds are released.

What are the current Spanish mortgage rates?

For interest only loans, you can expect a rate of 2.35%, fixed for 14 years.

For a repayment loan, we can usually find clients rates of around 1.65%, fixed for 20 years (at 70% LTV).

Variable mortgage rates in Spain are available from some banks – they generally follow the Euribor 3 months + a margin. However, don’t expect to be spoiled for choice if seeking a variable mortgage, as low, long-term fixed rates have pretty much become the norm.

What is the Euribor?

This refers to the Euro Interbank Offered Rate and is the rate at which Spanish banks and institutions lend money to each other. The EURIBOR is usually the base rate at the time plus a margin. Most Spanish banks with a variable rate base their rate on the Euribor 3 month, plus their own margin.

For more information, search for Euribor/European Banking Federation.

How can I secure a specific rate?

In order to secure a rate that appeals to you, it is vital that you quickly send us all of the required documents for the loan application. When we have received these, we can forward them to the bank the same day and, hopefully, reserve the rate for you. Rates can change twice a month, so the speedier you can be the better.

Why is my rate different to my friend’s?

Most lenders work on a regional basis and rates differ around the country. We have partnerships in place in Spain’s prime locations.

If we have a larger deposit, can we secure a better interest rate? 

This isn’t necessarily the case, but we’ve found that it certainly can’t hurt when negotiating. 

What is the TAE (Tasa Annuel Equivalente)?

The TAE is the Spanish equivalent of the APRC in the UK: the annual percentage rate of charge. It includes the following costs (numbers reflect a property with a purchase price of 3.92m euros):

+ Mortgage tax: €53,058.30

+ Collateral guarantee: €255

+ Life insurance: €117,600

+ Bank fees: €25,000

+ Broker fees: €29,400

+ Total interest: €555,176.80

Total mortgage cost = €780,490.10

+ Capital = €3,920,000

Total repayment = €4,700,490.10

The APRC calculation is pretty complex, so your best bet is to speak to an expert or get busy with excel. The formula is =RATE(240,- 4700490.10/240,3920000) which gives a rate of 0.16% per month when it is rounded to the second decimal point. Simply multiply by 12 to get the annual rate of 1.92%. Flummoxed? We can help!

How much is non-resident income tax?

Income tax liability of 19% is charged for non-residents who are members of the EU/EEA (24% if they’re not). This liability can be offset against the loan Interest.

For mortgage hunters looking to buy their dream property in Spain, here are our five top Spanish mortgage tips. We say ‘boring’, but they’re actually well-worth knowing!

1) Gather some ‘rainy day’ funds

You’ll need these for the sundry expenses that come with buying a property – and your lender will want to see a sizeable pot to feel confident that you’re not over-stretching yourself. Spanish banks will also want you to demonstrate that there is a buffer after the purchase has all gone through: these rainy day funds are there for if anything unexpected happens – your bank will expect to see evidence of this safety net.

2) Understand the eligibility criteria

Spanish banks are more than happy to lend to overseas buyers, but they do need to meet their lending criteria.  Three years’ tax returns and three months’ proof of income will be needed if you are employed. If you’re self-employed it will be three years’ accounts.

3) Get expert advice!

One of the reasons that Spanish mortgage rates are so incredibly low at the moment is that the banks compete quite aggressively with each other for buyers. However, an international broker specialising in Spanish mortgages – an ‘insider’, if you will – can usually find even better rates and products than if a buyer was to go direct. 

4) Be realistic about rental returns

For investment properties and also standard buy-to-let properties, mortgage-seekers should make sure they feel confident about the returns they expect – never more so than if they are factoring these into their mortgage payments. Ask around, throw-out some feelers on chat rooms, and make sure you’ve not based your entire future on the promise of dazzling annual returns that a random stranger boasted about 10 years ago.

5) Don’t let ‘the system’ grind you down

The Spanish mortgage system is certainly more regulated than in the UK, but in return you get relative security and also, in part, an explanation for why the banks of Spain can offer such low rates over such long terms. Sure, this can all mean that the application process does eat up a little more time, but in the end it will be worth it.