FISCUS MORTGAGES - INFORMATION AND ADVICE

Spanish Property Mortgage

PURCHASING SPANISH PROPERTY

The first thing to state is that, because of the intricacies and distinctions of English and Spanish law, you should obtain English-speaking legal representation conversant in Spanish law to protect your interests. Your representative will be able to confirm that the property in question is free of any debts and that there are no restrictions in place on your potential Spanish property.

Alongside these checks, it should be relatively straightforward for your legal representative to ensure that there is no fraudulent activity involved by checking the Spanish property register to confirm that the vendor in question does in fact own the property on offer. As part of this, your representative can provide a Nota Simple. This is the form that will notify you of any outstanding debts on the property. This is very important in Spain, as unlike the UK, any outstanding debts (including mortgage debt) are charged to the property in question and not the individual, so a home sale would see the debt passed onto the purchaser.

Once all the checks have been carried out to your satisfaction, you are ready to make an offer. Assuming a mutually acceptable price has been agreed, it is best practice to sign a Contrato privado de compraventa, which is a preliminary contract. This form contains the details of the transaction, including a description of the property and the agreed purchase price.

The Contrato privado de compraventa should contain an arres agreement and a date specified for completion. The arres agreement locks the vendor in place, allowing you to pursue legal action against them should they subsequently pull out of the deal (if this occurs, you are entitled to compensation of double the deposit). The cost of this contract is a deposit of around 10% of the purchase price. These funds will be held by the estate agent until completion.

Once this has all been done, the purchase can move onto completion. On the completion date, the purchaser must pay the balance owed (if borrowed funds, then the monies are on passed from the mortgage provider) and any other outstanding fees. The buyer and seller then both sign the Escritura de compraventa, which is the final contract and is in essence the Deeds to the property. This contract must be witnessed by a Notary Public, a government official, and then copies are forwarded to the Spanish taxation office and to the land registry.

Advice On Borrowing / How Much Can you Borrow

SPANISH MORTGAGES

We work with two company's one is based in the UK and they are probably the country's leading overseas mortgage provider in the UK called Conti financial services if you are looking for some that that now's the answers to all your question about buying a holiday home, villa or a new family home then fill in Conti's enquire form.

Our second spanish mortgage provider is based in spain and again can help you in all sorts of ways they, are one of spain's fastest growing banks called Bankinter. So if you are a UK resident or a Spanish resident Bankinter can help you find a great mortgage rate to suit your budget. To find out more about Bank inter.

If you want to apply for a mortgage in Spain please fill in our enquire form.

Spanish mortgages are full status only, so you will need to provide proof of your income and outgoings. As with UK mortgages, the loan itself can be used not only to purchase the property but can pay for other investment such as renovation. It is also possible to get a re mortgage for a property through certain lenders.

Both Euro (€) and Sterling mortgages are available, and the minimum borrowing amount depends on the lender chosen. Most home loans are repayment mortgages, although some lenders will offer interest-only mortgages, and the mortgage duration can be anything from 5 years through to a 25 year term. Lenders will require the borrower to take out life cover and mortgages need to be repaid in full by the borrower’s 70th birthday. The mortgage itself is secured against the Spanish property.

The maximum loan-to-value (LTV) of a mortgage is 75%, which means a deposit of 25% of the purchase price will be needed for borrowing. The borrower will also be required to pay legal and arrangement fees.

When Spanish lenders consider your loan application, they will not take into account any potential income from renting out your Spanish property. If you are in full-time employment, the mortgage provider will judge your application on the income stated on your income and the amount credit to your bank account each month (proof will be required).

If you are self-employed, your income will be calculated as your average annual net income over the previous three years. You will require evidence to support this, as you will not be able to obtain a self-certification mortgage.

As a general rule, 35% of your net income should be sufficient to cover all existing outgoings. ‘Outgoings’ that are taken into account are your existing debt and any other regular payments, such as UK mortgage repayments, rent, personal loans and any other commitments. On the flipside, secondary income at the time of application will be considered, such as unearned income from investments and other properties.

IMPORTANT TAX IMPLICATIONS OF PURCHASING SPANISH PROPERTY

If you purchase Spanish property, you will have to complete an annual Spanish tax return as well as your British Inland Revenue forms. Any income earned from your property must be declared to the Spanish authorities, with non-resident income tax set at 25%.

If your Spanish property is just a holiday home and is not rented out, you will still be required to pay Spanish taxes. The tax payable will be assessed using estimated figures calculated by the authorities. To provide a ball park figure, the tax payable on a property worth £500,000 would be in the region of £1,875.

When it comes to selling the property, you will be charged the Spanish tax plus valia, which is charged at a standard rate of 35% for non-residents. You must notify the Inland Revenue (UK tax authority) of any tax you pay when the property in Spain is sold.

There are other taxes in Spain, such as property taxes when purchasing a home, but these should be ignored when filling in your UK self-assessment form. Spanish property buyers pay a conveyance tax (known as ITP) of 6% when an existing property is purchased. If the property in question is a new development, the tax rate stands at 7% and is the Spanish equivalent of VAT, known as IVA. If you were to purchase an existing property (say 10 years old) at a cost of £500,000, you will be facing a transfer tax of £30,000 when you purchase the home.

On top of these property taxes, there is an additional tax to consider: annual wealth tax. As a general rule, this is calculated using the total value of all your assets in Spain. However, if you decide to live in Spain for more than six months of each year, the Spanish tax authorities will reclassify you as a resident. Your Spanish tax bill would then be based on your worldwide assets.

There are eight brackets of wealth tax. As an example, non-residents pay 0.2% in tax on total Spanish assets of £116,300 and 2.5% on total assets of £7.4m. If your sole Spanish asset was a £500,000 home, you would fall into the 0.9% tax bracket and would thus pay annual wealth tax of £2,050.

Next to consider is local property tax. As with all property/council taxes, this varies from region to region, but you should expect to pay something in the region of 0.5% - 1% of the property’s value. Again using our £500,000 property as an example, this would lead to a local property tax bill of £3,750. You will also have to pay for drainage and trash collection, which is likely to set you back another £150 each year.

If we then add up all the numbers, it transpires that owning a £500,000 Spanish property is likely to leave you with an annual tax bill in the region of £7,825.

You may leave Spanish property as inheritance in your will. If you are a UK resident however, you will have to pay Inheritance Tax twice; once to the Spanish taxman and then a second time in Britain. This means that you are likely to pay anything from 15% to 50% on the value of your Spanish home. If your heirs are your children and a spouse, these groups benefit from a lower rate of Inheritance Tax.

YOUR NEXT STEPS

Your best option is to speak to an Independent Financial Adviser (IFA) that can find the deals that are best suited to your individual circumstances. If you would like to speak to one of our IFAs, please complete our mortgage enquiry form and we will have one contact you within 24 hours.