Buying Spanish Property

Spanish property is now more popular than ever, thanks to an increasing trend for getting away from it all, downsizing and the rapid emergence of numerous low-cost airlines.

As they say, ‘timing is everything’ and currently timing is excellent. European interest rates are low and the choice of property is superb ranging from stylish apartments to farmhouse (fincas) and charming village houses in rural locations full of character – not forgetting luxurious modern and classic villas and modern Spanish resort townhouses and the new ultra chic, high spec apartments with extensive communal facilities.

Many Spanish properties provide shared facilities such as gardens, swimming pools, tennis courts and gyms.

Understandably, the coast is still favourite with many buyers of Spanish property. Government statistics show property prices will increase in Spain by between 11% and 16%. For low cost renovation projects look to Spanish inland areas where prices are often far lower.

Flexible mortgages are now available from a wide range of well known lenders. These recalculate the outstanding capital and interest daily allowing you to make overpayments on the outstanding loan whenever possible. Mortgages are also available which permit you to take a break from payments thereby increase the interest payable. A complete break from payments may also be arranged as long as there is an adequate balance in your account.

If possible, buy your Spanish property outright. That way obviously you own the property and avoid increasing your existing mortgage debt. If a mortgage is the best way for you to purchase a Spanish property one can simply add to one’s principal mortgage or take out a new separate mortgage on your foreign property. Increasing your existing borrowings is probably one of the cheapest options. Alternatively one can consider a second mortgage on your new Spanish property or holiday home.

Having a Spanish mortgage doesn’t automatically involve dealing in foreign currency. Abbey and Barclays offer buyers of foreign property euros or sterling loans. If you intend to rent out your Spanish property the rent may be received in euros in which case a euro mortgage allows you to offset the rent against repayments.

Obviously if you choose not to rent out your Spanish property but still have a euro income of other sorts then a euro loan is sensible. However those earning sterling in the UK will find a mortgage in sterling a sensible option. This way you needn’t worry about exchange rate fluctuations. The majority of euro mortgages will be of the repayment type and also with repayment periods shorter than British loans. In Spain, many have a term of 15 to 20 years. Clearly this will impact on your monthly payment amount. loan-to-value ratios will usually also be lower and therefore may restrict the amount of available Spanish funds. Around 75% may be the typical LTV.

There will always be more than one type of lender for a second home or Spanish property. You have a choice of the large Spanish banks such as CAM, BDV and Solbank as well as almost all UK lenders. The Spanish banks are very keen to arrange mortgages with non Spanish borrowers. All the major Spanish banks have branches located in almost most mid to large size towns both inland and along the length of the Costa Blanca. Their staff will speak English and will guide you along all stages.

Your Spanish property will serve as collateral against the loan i.e. the bank’s security. Loans of around 70 – 80% are commonplace. Beware though that the bank will impose fees of around 1%-2% (arrangement) of the advance and around £200 to £400 for the valuation survey.

Many recognised high street UK banks have branches in Spain for example Abbey and Barclays as well as the Royal Bank of Scotland. These are staffed by Spaniards almost all of whom will speak English and are well trained in the provision of financial packages to purchasers of Spanish property.

Many specialist mortgage brokers also exist and these are worth talking to in order to locate some of the more competitive mortgages.

Don’t forget to add around 10% to the property price to cover the unavoidable costs of the transaction.

Which location? Use (almost!) the same criteria you would when looking at property in the UK. Is your preference for rural, village, town or bustling resort? Just how important is proximity to the sea? Ditto shops, hospitals etc.

Most importantly, familiarise yourself with the region. Go there, hire a car and become knowledgeable about the various Spanish towns and villages in the area.

Check what services the property is connected to. Establish whether connections already exist for gas, phone, electricity and water. Can you get broadband Internet?

Talk to the people you meet there. Question them on the area. Its pros and cons.

Variety is essential – view a VERY broad selection of properties. Without this you will lack any real perspective of the market and what is available within your budget.

Regarding any properties which are part of an ‘urbanisation’ discover how much the community fees are and when payable. Try to talk to the president of the community. Visit the town hall planning department to establish what if any new development is intended in the vicinity (or within view) of your property.

ALWAYS appoint an independent, English speaking solicitor. There are plenty. This is essential.

Firstly there will be a deposit to be paid – negotiable between £2000 and £10,000 and a purchase contract to be signed. This is known as the ‘compra venta’ and is a binding agreement which details the sale and the date by which you agree to complete.

When you complete on the property, everyone involved will convene at the notary office - a government official charged with overseeing the transaction and the witnessed signing of all binding documents. It’s at this point that the deeds (escritura) are signed. On signing the escritura one must then pay the outstanding purchase amount including all legal fees and taxes etc. This includes 7% of the agreed price on new properties or of the escritura value on a resale property.

After this stage, the necessary transfer taxes and fees are paid.. The new ownership (transfer of ownership) will be registered by the notary. This is done with the Land Registry.

This registration document is known as the and "copia simple" and you should ensure that you receive a copy.

Combined purchase costs, taxes and Solicitor fees will usually equate to around 10% of the purchase price. This will cover advice on the contract, the investigation of the property title, the report on any enquiries undertaken, handling of tax payments and the procedures required for your final completion and property registration. The fees to be paid to the notary may be between are around £250 - £475. Land Registry will cost approx. £240. Clearly there may be other costs such as your surveyor, or those incurred with banks. These will vary from case to case.

Ongoing living costs in Spain typically will include Urbanisation or “Community Fees” for general upkeep and insurance of the community and shared areas such as gardens and pools.

Local i.e. town hall related taxes include a “wealth” tax or ‘Patrimonia’ (around 0.2% is typical), property tax and the “IBI” – a yearly form of property tax. Like council tax this varies depending on area. Often this will include charges for rubbish collection. Insurance. Comprehensive insurance is obtainable from many insurers. Utility fees such as electricity and water.

It is usual for property owners to appoint a “gestor” or "fiscal representative" to handle your admin. and other fiscal affairs. One other essential document is your will. Make a Spanish will. It might cost around £150 but is vital to represent your interests in Spain.

When choosing a Spanish bank account always study the maintenance charges as they vary a lot from company to company!

John Tweedie For more information about Spanish Property on the Costa Blanca Moraira Property tel: +44 (0)7836 33 55 82

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