Mortgages in Spain

Spain has been a top destination for UK expats and investors alike for many years. However, securing finance to purchase Spanish property is not always as straightforward as doing so in the UK.

We look at how UK-based brokers with specialist knowledge in the Spanish mortgage market can be an essential part of the process. Whether you’re looking to retire to Andalucia, invest in the perfect rental property in Barcelona, or buy a holiday villa on the Costa del Sol, at Money Helpdesk we can help you to navigate Spanish mortgage criteria, Brexit requirements, and other overseas regulations that differ from the UK.

Can you get a UK mortgage to buy Spanish property?

No, you can’t, from a UK lender. They don’t currently offer mortgages to British citizens or expats who are looking to buy residential property, or invest in the Spanish rental market.

However, the good news is that many Spanish mortgage lenders are very receptive to UK and other international buyers, both as residential buyers, and as investors. While Spanish mortgage rules are quite different to those of UK lenders, a UK mortgage lender with experience in the Spanish market will be able to help you.

How Spanish mortgages work for non-residents

Since Brexit, new regulatory considerations have been introduced for UK nationals looking to buy property in Spain. Because the UK no longer has status as a member of the EU, UK property buyers are treated like any other non-EU (or third country nation) buyer when it comes to taxation and how they are permitted to use their property.

In addition to this, borrowers not permanently residing in Spain, and/or those not paying their main taxes in Spain are classified as non-residents by Spanish Banks. Mortgage lending in Spain is dependent upon your residential status, and non-residents are subject to different maximum loan amounts, interest rates and deposit requirements.

Spanish mortgage criteria

Spanish banks are typically more conservative than UK mortgage lenders, and you’ll find that most still rely on manual underwriting. While this can be beneficial to those with more complex income, it’s important to keep in mind that lending criteria is usually stricter than back home.

As with any form of lending, criteria varies slightly among the different Spanish banks offering mortgages, however, most will apply the following criteria:

• Debt-to-Income (DTI) ratio - Spain has a strict maximum DTI ratio (total of all of your financial commitments compared to your income) of 30-35%. Known colloquially as ‘capacidad de endeudamiento’, which won’t typically take into account any equity you hold

• Income requirements - Employed applicants will need to prove that they have a secure, permanent contract. While there is no specified minimum income requirement, lenders will calculate affordability based on your annual salary. Self-employed borrowers may find the Spanish mortgage market slightly more difficult to navigate than the UK market, with a strict 2-3 years of fully audited accounts and tax returns required. While UK lenders may consider a lower loan based on declining profits, this is more likely to result in rejection in Spain. Pension income is typically accepted, so long as the mortgage borrower is within the age limits defined by the lender

• LTV limits - non-resident buyers face stricter LTV limits, with most Spanish lenders offering a maximum of 60-70% LTV

• Deposit requirement - Due to lower LTVs you’re likely to need at least 30-40% deposit when buying property in Spain, which must be evidenced by saving or investment receipts, much like in the UK

• Age limits - Spanish lenders usually require that the mortgage is paid off before the oldest applicant turns 75, although specialist lenders may extend this to 80

• Credit record - This can be more complex than UK credit searches, as Spanish banks are unable to access UK credit files directly like UK banks can. Instead it will be the borrowers responsibility to provide a full report from a reputable credit reference agency, such as Experian. Spanish banks are stricter when it comes to bad credit lending, and rarely offer mortgages to borrowers with an adverse credit history

How Spanish lenders perform property valuations

Once you’ve met the personal financial criteria of a Spanish bank, much like UK lenders, they will also consider the property valuation before finalising your loan size. They instruct a ‘tasador’ which is an independent certified property valuer to do a formal property valuation.

Banks will typically have no vested opinion on the property value, and will lend based purely on the tasador’s valuation. If this is lower than the agreed purchase price you could be left with a significant shortfall in funds unless you are able to renegotiate with the vendor. A broker with experience in the Spanish property market may be able to help you avoid or overcome this type of barrier. They may recommend that you invest in an independent survey before committing to buy.

Which lenders offer Spanish mortgages?

Banco Santander, who operate across the UK as Santander but originate from Spain, offer mortgages to UK buyers. However, many of the Spanish mortgage lenders will likely be unfamiliar to UK buyers, especially those who have not spent a substantial amount of time in the country. However, some other lenders who may be receptive to non-resident applicants are:

• Banco Sabadell

• CaixaBank

• Bankinter

• UCI (Unión de Créditos Inmobiliarios)

• CajaSur

However, as each has their own individual criteria, it’s important that you speak to a Spanish mortgage broker or a UK broker with experience in the Spanish mortgage market. They will be able to recommend the most suitable lender for your circumstances.

How to secure a Spanish mortgage as a UK buyer

There are, understandably, more steps to buying a property internationally than buying in your home country. When buying in Spain, it’s recommended that you follow these steps, alongside the guidance of a broker with experience in this niche:

1. Get an agreement in principle (AIP) - much like in the UK, this document lets you know how much you could potentially borrow from a Spanish bank. However, it’s even more important to take this step first when buying abroad, as flying out to view a property you are unable to finance is likely to be a huge waste of time and money

2. Apply for an NIE number and open a Spanish bank account - You cannot legally buy a property or take out a loan in Spain without a NIE (Número de Identidad de Extranjero). You must also open a non-resident Spanish bank account to ensure you can repay your mortgage in Euros

3. Negotiate the ‘Arras’ on your chosen property - A ‘Contrato de Arras’ is an interim guarantee to purchase the property, which involves the payment of a deposit - usually around 10% of the property value ahead of the mortgage. This cost is to remove the property from the market.

Important: It’s important that you have an independent Spanish lawyer to insert a ‘cláusula de rescisión por denegación de hipoteca’ which is a clause to say that your deposit must be refunded in full if the bank rejects your mortgage application. Not having this leaves you liable to lose that deposit if this happens

1. The lenders evaluation - This is the point at which Spanish mortgage lenders will instruct an independent valuation of the property. Keep in mind that the lender will be lead by this valuation when it comes to the property value, not the asking price

2. Bank issues the binding offer (FEIN) - FEIN (Ficha Europea de Información Normalizada) is your formal mortgage offer in Spain. They give a mandatory 10-day cooling-off period from the moment you receive the FEIN before you can sign it. This is mandatory in Spanish law and gives buyers the time to review their mortgage terms against other options before they commit

3. Notorisation - Spanish mortgage must be notarised at a notary public office (Notaría). The buyer, vendor, and an official translator must attend to oversee the exchange of funds and signing of the ‘Escritura de Compraventa’ (Property Deed) and the ‘Escritura de Hipoteca’ (Mortgage Deed)

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Types of Spanish Mortgages Available

Getting a mortgage in Spain gives you similar options to those available in the UK. Typically you will pick the interest rate type that’s most suited to your circumstances:

• Fixed-rate (Hipoteca a Tipo Fijo) - Popular with UK buyers in Spain who already have the uncertainty of fluctuating exchange rates to consider

• Variable-Rate (Hipoteca a Tipo Variable) - In Spain variable rates are usually tied directly to the Euribor (the Euro Interbank Offered Rate), much like the BoE base rate on UK tracker mortgages. Spanish lenders add a percentage on top of this, which moves in line with the Euribor. However, unlike the Bank of England, this is only reviewed every six or twelve months

• Mixed mortgage (Hipoteca Mixta) - This is similar to an introductory period on a UK fixed-rate mortgage. You pay a guaranteed fixed interest rate for an initial period of between 3 and 10 years, then it reverts to a variable rate tied to the Euribor, unless you remortgage

Can I get a Spanish Buy-to-let mortgage?

No, buy-to-let mortgages don’t exist in Spain, because they are not really needed. Spanish mortgages do not prohibit the rental of your residential property, so you could rent out your personal, investment, or holiday home with a standard mortgage.

While this is positive in that you won’t have to pay the higher interest-rates that are typically paid on UK investment mortgages when compared with residential rates, there is also a substantial disadvantage for prospective landlords. Spanish banks do not base their lending on any future rental income and will not even include it within their affordability assessments.

This means that any investment property purchased in Spain will be based purely on your existing personal income. You will also need to consider other costs, such as taxes on additional property ownership, as well as tax on vacant homes, if you are using the property solely for a holiday let.

Mortgage and property costs in Spain

Spain has higher transactional property purchase costs than the UK, and among the highest in Europe. As well as meeting the affordability of the mortgage and providing a substantial deposit, it’s also important to budget for the following:

Considerations for non-residents when buying a home in Spain

When buying a home in Spain, no matter whether you’re purchasing a holiday home to spend time with your family, a permanent residence to relocate to, or an investment property to make additional income, there are important things to consider about property ownership there.

Subrogation (subrogación de hipoteca)

This is a practice in Spain which is not available in the UK and involves a buyer taking over a seller’s current mortgage, rather than taking out a new one. For non-residents this is much more tightly regulated, but possible. This can be a very cost effective way of buying from older vendors who may be moving into care or with relatives.

The only issue that would arise is if the resident’s LTV is above the maximum limit offered to a non-resident buyer (around 70%). If the remaining debt on the subrogated property is higher than this, you must immediately pay the difference between the seller's LTV and your non-resident cap on completion day.

Urban and rural property classification

Properties in Spain are classified as either Urbana (urban/residential land) or Rústica (rural/agricultural land). It can be more difficult to secure finance for rural properties, especially when it comes to mainstream banks, as they often have historical or environmental zoning requirements attached to them.

If you’re looking to buy a country villa , it’s important to consult with a broker who has specific knowledge in this type of property purchase.

Habitability Certificate (Cédula de Habitabilidad) requirement

A valid ‘Cédula de Habitabilidad’ or ‘Licencia de Primera Ocupación’ (License of First Occupation) document is required for all properties purchased in Spain. This is issued by the local town hall and confirms that the property meets basic legal standards for human habitation. It also allows the legal connection of utilities like water and electricity.

Banks will not issue a mortgage offer without this document, so it’s important to ensure vendors are able to supply one when you view properties.

Paying in Euros - Fluctuating currency

All mortgage repayments in Spain will need to be paid from a Spanish bank account, in Euros. If you live and/or earn most of your income from the UK, or outside of the EU, this could mean that a shift in the exchange rate could significantly alter your mortgage repayments.

It’s also important to note that under EU law, if your mortgage balance rises more than 20% due to currency fluctuations, lenders are legally obliged to notify you. They may also be required to make accommodations for you to pay in another currency, but this will depend on the individual bank.

Changes resulting from Brexit

While Brexit happened some time ago, UK residents looking to buy property in European countries like Spain are still feeling the aftermath of changes caused by this political upheaval.

These apply specifically to those buying property in Spain:

• As a non-EU national, you can only stay in Spain for a maximum of 90 days in any rolling six month period. This means that holiday home owners can no longer spend half of the year abroad, and will only be able to remain there for a maximum of 3 months at a time

• Spain charges Non-Resident Income Tax (Impuesto sobre la Renta de No Residentes or IRNR) on any income generated by properties owned by UK nationals. A notional tax is also payable on properties left empty for personal use, so if you are unable to rent out your property during periods that you return to the UK, you will need to pay for each period of vacancy

• EU residents pay a flat rate of 19% on rental income. Post-Brexit, UK residents must pay a flat 24%

• While EU residents are allowed to deduct legitimate property-related expenses like mortgage interest and property before calculating their tax, UK residents are not allowed to do this

• An obscure Spanish national security law dating back to 1975 (Permiso Militar) dictates that non-EU citizens require formal military defense authorization before purchasing property located within strategic geographical zones. Because the UK is no longer in the EU, this extra layer of compliance now applies to British buyers purchasing on the Balearic and Canary Islands, and specific coastal areas near Cartagena, Malaga, and the Strait of Gibraltar. If you are buying a rural property or a large plot of land in these designated zones, your independent lawyer must apply to the Ministry of Defence for clearance.This can add 2 to 4 months to your purchasing timeline

• If you plan to buy and relocate to Spain permanently, you must secure a residency visa prior to moving. There are a number of visa types depending on your income status, however, the ‘Golden Visa’ (spending €500,000 or more on real estate granting non-EU buyers an automatic residency card has been discontinued since Brexit

The importance of specialist advice

Whether you’re concerned about language barriers, differences in Spanish and UK mortgage terminology, regulation and taxes, or simply need guidance to a lender whose criteria match your circumstances, a knowledgeable broker can be a huge comfort.

At Money Helpdesk we have experienced international mortgage brokers with knowledge in the Spanish market, and even some that are fluent in Spanish. They can make a potentially complicated and stressful process much smoother, and turn your dreams of Spanish property ownership into reality.

Get started here for your free initial, non-obligation chat with a broker with a Spanish mortgage expert.