As in the UK, Mortgages in Spain are offered by banks and sold either directly to lenders or through mortgage brokers. Several international banks including British ones operate in the market alongside the national banks.
There can be big differences in the costs and terms of Spanish mortgages on offer, ranging in flexibility, set up costs and total payments over the term. Although the European central bank sets the base rate, Spanish mortgage lenders are free to set terms and conditions and charges.
Types of mortgages
Many Spanish mortgages are variable rate mortgages meaning that repayments vary according to the European base rate. Therefore, if rates fall, the borrower pays less and likewise, more if the base rate increases. This means exact repayments cannot be guaranteed for the length of the loan term.
Many lenders also offer fixed rate mortgages which tend to have higher initial repayments. However, if interest rates rise in the long term these mortgage borrowers may pay less. Fixed rate mortgages work for those who want to know exactly what their repayments will be into the longer term but are far less popular than variable rate mortgages.
How much can you borrow?
Spain uses a Loan to Value system which means the lender will loan a percentage of the value of a property. For none residents this equates to 70% of the value so for every €100,000 of property value you can borrow €70,000 of that, meaning that 30% has to come from other funding such as saving etc.
As in the UK your personal financial circumstances dictate the level of mortgage lending available. As a general rule loans are given up to 35% of net annual incomes after UK debt commitments are taken into account. The length of mortgages offered depend on age and 25 year terms are common place.
SPANISH MORTGAGE OR EQUITY RELEASE IN THE UK?
Many people prefer to have the mortgage liability in the same country as the property they own overseas in. This saves complications of borrowing against their main home in the UK, and can eliminate some of the uncertainties of Sterling- Euro exchange rates especially if the property is to be rented out. It makes more sense to have money going into the account the mortgage is being paid out of. Also saving money can be a prime reason against UK equity release as interest rates are generally lower in Spain than in the UK, so monthly repayments will be lower. This situation is predicted to be so for the foreseeable future.
Another advantage of taking out a Spanish mortgage is that the lender will check and survey the property to protect its own investment as traditionally the Spanish do not carry out surveys etc. before buying property. The lender will also carry out its own legal checks so taking out a Spanish mortgage can give greater peace of mind.
USING A MORTGAGE BROKER
Most UK borrowers to not have the time or language skills to sift through the many mortgage products offered by all the lenders in Spain. A good idea is to use a reputable independent mortgage broker recommended by other people. They will find the best mortgage to suit your individual requirements.
If unsure of the exact amount to be borrowed always go for the higher figure that may be required as it is far easier to reduce that figure than go through all the paperwork again if the amount has been under estimated.
Spanish mortgages have higher set up costs than UK equity release but over a mortgage term will be cheaper as repayments will be lower in most cases. Also if you plan to pay off the loan earlier than the loan period the costs are far cheaper in Spain and penalties to do so are a tiny fraction of those charged by many lenders in the UK.
By Chris White, Founder of Ideal Homes International