Buying Property in the Canary Islands with a Spanish Mortgage
Before granting a mortgage in the Canary Islands the Spanish lender will require that the property is valued by one of their appointed valuation companies.
This can cost anything from a few hundred Euros to over a thousand Euros depending upon the value of the property. The person applying for the Spanish mortgage will be required to pay this cost.
- Employee P-60 all applicants
- Copies of passports all applicants
- Copy of contract of purchase
- Copies of bank account statements (if already account holder here in Spain)
- If Self-employed: 2 years accounts plus copies of 2 years bank statements
- Copies of passports, all applicants
- Contract of purchase
You will be pleased to hear it’s fairly straightforward to apply for, and obtain a mortgage and non-residents can obtain up to 60% of the valuation price.
Do you qualify for a Spanish Mortgage?
If it’s your intention to apply for a mortgage to help you to purchase your property in the Canary Islands, then the time to think about it is now, before you actually start your property search. As I’m sure you will agree, there’s nothing more disheartening than falling in love with your dream home in the sun, only to discover a problem putting together the financial package.
Having a mortgage offer in your hand before you start your search for your property in the Canary Islands will give you an absolute clear idea of your buying budget before you start, and will mean that you can put a serious offer down on a property as soon as you see it, without the need to waste precious days for a mortgage to be approved, and potentially losing your ideal property to another buyer.
We can help to pre- qualify you before you leave home - it’s a simple process and will only take minutes to fill in the form by clicking here.
The pre-qualification process can take up to 14 days during busy periods, so it is best to return the form to us a couple of weeks before your proposed date of travel.
Spanish Land Registry Fee
Before a mortgage lender will grant a loan on any Spanish property it will insist on seeing a nota simple (land registry filing) the nota simple will confirm that the property does not have any other unexpected debts attached to it.
You (or your lawyer/estate agent) will need to request a nota simple from the land registry for you own sake, this is a cost that you would face with or without a Spanish mortgage, and we will be very pleased to help you in this matter.
Mortgage Opening Fees in Spain
As in the UK most Spanish mortgage lenders charge a fixed fee for setting up a mortgage. This is typically 1% of the value of the mortgage. However it can range from 0.5% to 2%.
Insurance on Mortgages in Spain
There are several types of insurance to consider when arranging a mortgage in Spain.
The first is general house and contents insurance. This is a legal requirement of mortgages and the lender must appear as the beneficiary of the home insurance.
The amount of insurance that will be required will be established by the valuation, and the insurance value will not be the same as the value of the property. The insurance value is the amount required to rebuild the property, this will not include the value of the land as the land will still exist. The other two types of insurance are life insurance and mortgage insurance. In both cases insurance is not mandatory (as it is for home/building insurance), however it is worth considering them as not only is it important to have appropriate insurance cover but it will also help you when negotiating better conditions for your mortgage. The costs of the insurance are based on the lenders age and the actual amount of loan required and therefore can vary from bank to bank. A point worth noting is that Insurance in Spain is generally cheaper than in Northern Europe.
Notary Fees – Mortgages
If a property has a mortgage secured against it this has to be declared before a Public Notary. The Notaries fees are based on the number of clauses in the deed and a mortgage deed will have approximately the same number of clauses as a purchase deed. The notary will charge for this and therefore a mortgage increases the Notary costs at the time of signing the public deeds.
Mortgage Land Registry Fee
Equally the existence of a mortgage on a Spanish property (the mortgage is seen as a debt against the property) and must be registered with the land registry. This will increase the land registry fees slightly when buying property in Spain. The fee for registering a mortgage in Spain is approximately the same as the fee for registering the property.
Stamp Duty (AJD) on Mortgages in Spain
This is a tax paid to the Spanish government and is calculated as a percentage of a mortgage. The amount can vary from region to region and vary according to the amount of the mortgage taken.
Arrangement Fee for Deeds
This is a fee payable to the company (gestoria) who arrange for the deeds to be inscribed correctly in the local land registry. Mortgage lenders will normally insist on using their chosen gestoria as they need to be absolutely sure that both the property and the mortgage have been properly registered. This cost should not be more than a couple of hundred Euros
Mortgage Early Cancellation Fee
Mortgage lenders in Spain do not like it when clients cancel a mortgage early (for instance if they have found a cheaper mortgage). Therefore they often impose a fee on early cancellation. It is common to find early cancellation fees of 1% of the value of a Spanish mortgage, though a good mortgage broker will find you a mortgage with very little or no early cancellation fee. From our client’s perspective a mortgage without this fee is preferable as it makes the mortgage much more flexible.
Mortgage Partial Cancellation Fee
Some mortgage lenders in Spain try to penalise clients who pay off part of their mortgage early. This is known as partial cancellation and will often carry a financial penalty related to the amount that is paid back early.
Subrogation Fees on Mortgages
If a property that has a mortgage secured against it is sold, the mortgage can be either cancelled or taken over by the new owner (known in Spain as subrogation).
The subrogation fee is usually paid by the new owner and is typically lower than an opening fee for a new mortgage (0.5% instead of 1%). Therefore, if you are offered the possibility of subrogating a mortgage it is important to bear in mind several factors:
- Subrogating a mortgage means continuing with the existing mortgage (that means the same conditions i.e. period and interest rate). In doing so you might not be taking over the best terms available to you in the current mortgage market.
- On the other hand all of the set up costs; Notary, land registry and taxes, will be lower also.
Mortgage Interest Payments
If you have a Spanish mortgage you will find that your monthly mortgage repayments are comprised partly of capital repayment and partly of interest on the loan (unless you have an interest-only mortgage, which are still not very common in Spain). At the beginning of the mortgage the interest payments will be the larger of the two, but as time goes by and you pay down the principal of the loan, the interest payments will decrease in relation to the capital repayments. Interest payments are calculated as a function of the base rate set by the European central bank (Euribor). Some Spanish mortgages have a fixed rate for the first period – say the first year – and then go on to Euribor +x%. The ‘x%’ is the lender’s margin on the loan, and this will vary according to lender and client. In general, the margin that Spanish mortgage lenders charge varies between 0.75% and 2.5% for variable rate loans.
Capital Repayments on Mortgages in Spain
Capital repayments on a standard mortgage take place on a monthly basis and the amount will depend on the lifetime of the loan. The more years that you have to pay off the principal, the lower the monthly repayments in relation to the size of the overall mortgage. If you take out an interest only mortgage in Spain then you will not start paying back the capital until much later on (for instance after 10 years or at the end of the mortgage lifetime).
The advantage of an interest-only mortgage in Spain is that monthly mortgage repayments in the short term are low. However you are not paying off the principal over time. Therefore be prepared to return the capital in its entirety at the appropriate time.