Mortgage in Spain – the most important matters

Have you decided to buy property in Spain and are looking for a source of financing the investment? Read on to find out on what conditions you may obtain a mortgage in Spain. We have complied all the crucial information on taking out mortgages by foreigners in Spain.

How to finance a property purchase in Spain?

After the huge economic crisis in Spain, the Spanish property market has rebuilt itself very well. In November 2018, the prices of houses increased by 5.6% and 2020 is yet another year of price appreciation in this market. The great interest of foreign investors resulted in the Spanish market opening for new Clients. Banks and other types of financial institutions in Spain offer a great choice of financial instruments that facilitate financing the house purchase in Spain.

Of course, one may also use various sources of financing the investment:

• cash
• mortgage in the country of residence
• mortgage in the country in which the property is bought
• a loan / a cash loan

However, mortgages are the most frequently selected form of financing property.

Mortgage in Spain – FAQ

Generally, foreign citizens have no restrictions in taking out mortgages in Spain. Nevertheless, before you opt for this source of financing, make sure to check out the specifics of the Spanish financial market and what to do to choose the most advantageous offer.

► What is the best currency for taking out a mortgage in Spain? Mortgage in Euro or the other currency?

The most popular type of a mortgage in Spain is the one taken out in Euro. Certain banks offer taking out mortgages in a different currency (e.g. pound sterling or Swedish krona). However, the amount of these products on the Spain mortgage market is relatively small. The main advantage of taking out a mortgage in a different currency to Euro, is the smaller cost of currency conversion when repaying the mortgage. On the other hand, such products are not common due to the higher costs of mortgage service imposed by the institutions offering them. Of course, the choice of mortgage currency depends from time to time on the terms and conditions of the transaction. If you plan to buy a house or an apartment in Spain with a view to tourist rentals, it is advised to take out a mortgage in Euro. Hence, you will hold assets and liabilities in the same currency, which will guarantee the liquidity of your mortgage repayment.

►  What is the maximum mortgage repayment term in Spain?

Spanish banks grant mortgages for a maximum period of 30 years. However, it is advised to plan a ca. 20-year repayment period. Prior to the economic crisis, banks and financial institutions granted mortgages even for a period of 40-50 years, which has had a very negative impact on the condition of many banks. Therefore, you should now assume a maximum repayment period of 30 years, and will most likely obtain a 20 years period. Of course, if you have credit worthiness to repay the mortgage in a short time, you may opt for a 5 or 10 year repayment period.

►  How to apply for a mortgage in Spain?

The process of applying for a mortgage and the process of purchasing property in Spain are carried out simultaneously. Notwithstanding whether you are a resident of Spain or if you are a foreigner  applying for a mortgage, you will need to submit the following set of documents:

• A passport or ID copy
• The Spanish Tax Identification Number (NIE)
• Certificate of employment or certificate of income source (e.g. an employment contract, 3 recent payrolls, tax return for the previous 2 years)
• Information on current debt and taken out mortgages
• Statement of assets (bank statements, investment fund statements – account balance for the last 2 years)

► May the English apply for a mortgage in Spain?

Generally, Spanish banks do not impose restrictions related to the nationality of the investor. In some cases, however, they offer products that favour investors from specific countries or regions. Due to the large quantity of British investors in Spain, the Spanish banks are eager to grant them with mortgages.

►  What amount of mortgage will I be granted in Spain?

The major difference in offering financial products to investors registered in Spain and foreigners, is the level of a maximum mortgage volume (LTV – loan-to-value). The Spanish may loan up to 80% of the property value, whereas foreigners may loan ca. 60-70%, depending on the mortgage value. The maximum value of a mortgage is related to the value of a property as determined by a bank expert.

Only a few years ago, banks were selling properties that they had previously taken over themselves. See: bank-owned properties. In these cases, the banks granted mortgages of even 100% of the property value. At present, however, there is not much of a chance for this type of a mortgage.

► How much of own contribution do I need to obtain a mortgage in Spain?

Usually, a contribution of 30-40% of property value is demanded. Therefore, if you plan to buy property, you should hold ca. 40% of property value for covering the costs of contribution, stamp duty and notarial fees connected with property ownership and mortgage disbursement.

► How much do I need to earn to obtain a mortgage in Spain?

Obtaining a mortgage in Spain requires a stable income that will gurantee safe repayment of a mortgage. The amount of required income depends on the mortgage value one applies for, as well as on the repayment period. For instance, if you consider buying a 100,000 Euro property, you will need an income of ca. 2,000 Euro/month. To provide greater security of mortgage repayment, it is worth considering the purchase of a property by a few people that have a stable income. The monthly instalment must not exceed 35% of the borrowers' income. That means, that if one earns 2,000 Euro, the instalment will reach a maximum of 700 Euro.

► What are the additional costs and fees associated with the purchase of property?

Of course, the amount of transactions costs connected with acquiring property depends on the property value itself and on individual mortgage conditions. However, it is assumed that the costs of fees and taxes amount to ca. 10-15% of the property purchase price. The precise transaction costs are described in the following article: the total cost of buying property in Spain.