Owning a home in the sun is becoming increasingly popular with many Europeans from northern climes that don’t enjoy 300+ days of sunshine per year! Also with so much uncertainty in the world’s stock markets, many investors are looking to affordable Spanish property as a viable and practical alternative to traditional equity investments.
Property situated in southern Spain offers a great opportunity for capital appreciation with an asset-backed and indexed income from the potential holiday rental, whilst at the same time providing a year-round venue for their own family vacations.
Whilst wealthier purchasers or the retired may be able to afford to buy their Spanish home for cash, it is becoming increasingly possible to borrow the required finance to make owning in Spain a reality.
Three ways to borrow
1) Using an existing property in the UK, or the borrower’s home country, as security for the loan and then buying in Spain for cash.
2) Using the property you want to buy in Spain as the security for the loan.
3) A combination of both the above.
How much can be borrowed
The size of the loan depends upon the method used when applying for the loan and is restricted to a percentage of the declared purchase price or valuation (whichever is the lower).
Finance against a Spanish property
The lender will apply a multiple to the borrower’s provable income. In Spain, the multiple used is typically three times the gross salary or net profit for the self-employed. Any other financial commitments such as other mortgages or loans are deducted, and the lender requires that income is sufficient to cover all financial commitments.
This is acceptable for borrowers with sufficient existing income to cover current and future commitments. However, for borrowers that intend to let their new Spanish property to generate income to subsidise the new loan, their own income is often insufficient to satisfy the lender’s criteria.
The maximum percentage loan for mortgages in Spain is typically 65-80% of the property value. Mortgages are available in euros at a set amount over the bank base rate, or in pounds sterling also at a set margin over the Bank of England base rate. Fixed rates are available for short and longer terms for borrowers who require a guaranteed monthly payment.
Lenders do not generally allow borrowers to enter into long-term rental agreements, but do allow short-term holiday lets providing the property is primarily for holiday or leisure purposes and is adequately insured.
Finance against an existing UK property
If the loan is to be secured against a UK property there are more ways in which lenders are prepared to calculate the maximum loan:
(i) Based on the available equity in the UK property by allowing borrowers to self-certify their income.
(ii) Calculated on the borrower’s salary or net profit in a similar way to the above.
(iii) Based on the property’s rental yield.
(iv) In the case of a commercial purchase for investment purposes, based on a limited company’s profit.
The maximum percentage loan for mortgages secured on a UK property for UK residents is 95% of the property value.
How long it takes
Arranging a mortgage secured on a Spanish property will usually take 6-8 weeks. Arranging an equity release or re-mortgage on a UK property to raise funds to buy in Spain will normally take 2-4 weeks.
Types of property
Loans are available to purchase any type of residential property, whether a small apartment, townhouse, large villa or traditional Finca.
Loans can also be obtained to purchase land and finance the building of your own home. In this case, funds are usually released in stages to match the progress of construction. Funding is also available for improvements, extensions or additions such as a swimming pool.
The following companies deal with mortgages in Spain – of course, it pays to shop around:
Mortgage Solutions 4 Spain (Spain) – +34 678 021 347
The CAM Bank (Spain) – +34 952 965 173
Royal Bank of Scotland (Gibraltar) – 956 744 166
Norwich & Peterborough (Gibraltar) – 956 745 050
Watercress Associates Limited (UK) – 0207 256 6631
Watercress Associates Limited (Spain) – 680 619 314