Insight - Your Questions Answered about Mortgages in Spain

I work closely with specialist mortgage brokers to help my clients to secure mortgages in Spain because it’s such a tricky area. I have buyers asking how to get one, what do you need and what sort of products are out there. It’s a changing situation, which definitely needs specialist help.

I recently interviewed Kevin Monger and Howard Steel from Mortgage Direct for our YouTube channel, to pick their brains on the mortgage situation, get an overview of what's happening in the Spanish mortgage market and how you can get one. Here are a few of the key topics we covered. You can see the full video interview at the bottom of this page.

What is the loan to value for a non-resident buying in Spain?

70% is the maximum, but a lot of the banks have now reduced it to 60% if it’s in a currency other than the Euro. If you want to buy in the name of a company, it’s a maximum 50%. You are offered this as a percentage of either the purchase price or the valuation of the property, whichever is the lower figure.

It’s important to shop around, especially if you’re not earning in Euros. Sometimes buyers don't qualify for a mortgage because they are earning in a currency that not all banks might lend to, but some banks would.

What mortgage products are there in Spain?

The Spanish mortgage market is relatively unsophisticated, as there’s no interest-only or buy-to-let products. Occasionally it’s possible to get a year or two interest-only while you're doing a construction project - building your own home, for example. However, that would only last while you're building the property, after that and in all other cases, it has to be on a capital and interest repayment basis.

You can choose from a fixed or variable rate. If you go for a fixed rate, when you go and sign your mortgage deed your interest rate is fixed from that day onwards. You don't have to go to the market again in two years, three years or five years as you would do in the UK and renegotiate better terms.

What are the current rates for fixed and variable rate mortgages?

As we all know, interest rates are on the rise. As of June 2022, typical rates are around 2.1% - 2.5% for a fixed rate mortgage and around Euribor + 1.2% for a variable rate product. With the Euribor figure hovering at just over 1% at the time of writing, the rates for the two types of mortgage products are surprisingly not so different. Experts are recommending choosing a fixed rate mortgage, given that predictions are that interest rates will continue to rise.

However, it does vary, as banks don’t follow the European mortgage directive or the rules that were introduced when that legislation came in. This means you can have banks and even individual branches offering different rates and terms, which is why shopping around or using a mortgage broker is a good idea.

A word of caution - be careful with the additional products that banks are using to disguise the true cost of the lending. Some banks might say you need to have alarm systems, life insurance policies, debit/credit cards, every other thing that they can imagine, but obviously come up with a headline interest rate. It is really important to actually look into the detail of each offer, including any arrangement fees and exit fees to work out what the true cost of the financing is, so you can accurately compare.

Am I eligible for a mortgage in Spain?

To be eligible for a mortgage, clients will need to satisfy a number of conditions, primarily the affordability test, i.e. that they have the means to afford the monthly repayments.

Most banks and mortgage brokers will insist on you providing your last 3-6 months bank statements, payslips and a list of existing liabilities (other mortgages, loans etc), plus a credit report from the likes of Experian. Once they are armed with this information, a decision in principle can be given pretty quickly, normally within a week.

The perfect mortgage candidate is somebody who's been in regular employment for a long time, who can produce salary slips and has a good bank credit history.

It is more difficult for people who are self-employed, but I was pleased to hear that Mortgage Direct feel it has improved in recent times and that several banks will look at net profits and affordability, looking at personal tax declarations to work out what the net income is. Sometimes they apply a percentage, as income is treated as variable.

They focus on what we all know to be debts, mortgages, loans, credit cards, car leases or even private school fees and alimony, but it varies from bank to bank. Often, they will give 35% of the net monthly income and deduct any debt and then convert it into Euros to see whether you can afford the mortgage you need.

How long do you need between speaking to a mortgage broker and getting things approved?

A mortgage broker will do a pre-assessment to help buyers know whether they would qualify for a mortgage or not. The mortgage application process can take anything between three or four days, to two to three weeks. The whole process can be signed in say six to eight weeks, however clients can't sign the actual purchase of the house until after 10 days of receiving the mortgage offer, and then they go to the notary to sign on the property.

A mortgage broker can help you to speed the process up a little bit by trying to do the valuation in tandem with the mortgage application. It generally saves two to three weeks of the whole process, and although there will be a cost of paying for a valuation, it makes things quicker and avoids headaches in the future.

When should you speak to a broker?

Contact a broker as soon as you are thinking about buying property in Spain and definitely before getting on the plane. They'll run through your profile to see if you're going to qualify for a mortgage or not. If it's borderline, they can try and obtain a formal approval based on a link to a property you may be interested in, or do an internal assessment, work out the affordability, and tell you if it looks good.

They can also advise self-employed people, on what to do over the next six months to a year, and what you need to be able to show to make it easier to get a mortgage, such as paying themselves a salary over a certain period to give the bank some certainty. This is why consulting a broker in the very early stages of your search is a good idea.