6 ways to finance your Spanish house purchase

A cash purchase

You might have inherited money, have substantial savings or had a windfall you’d like to invest in overseas property. Cash buyers can also raise collateral by releasing equity from existing assets. In many Spanish regions, the average house prices are lower than in northern Europe, so you can sell to downsize your property, or even find something like for like in terms of floor space in Spain.

Pros

• This is a very quick way to make a purchase and could be used as a bargaining tool to negotiate a good price for your Spanish property.

Cons

• It’s still advisable to get all the valuations and legal checks a bank might carry out to ensure you’re making a safe investment. An independent bilingual solicitor can help with this.
• It’s also important to keep an eye on the exchange rate to be sure you have an updated idea of the full value of your investment. Find out more about how currency can affect affordability and house prices in Spain.

A mortgage from your home country

There are usually two options for getting a mortgage loan. However, there are notable differences in the process for each country.

The first would be a typical home-buyer product using a cash deposit. Many international banks will offer overseas mortgage services and advice.  

Pros

• The process will be familiar.
• There are no translation fees.
• If you choose to get a mortgage from a bank in your country of residence it will be quicker to prove your eligibility for credit.
• You may have protection from disputes from an established administration. For example, in the UK mortgages are protected by the Financial Ombudsman Service and Financial Conduct Authority.

Cons

• The due diligence on surveys and legal checks may be hindered by a lack of local knowledge.
• Your bank might not offer the market expertise of a Spanish lender.
• You will need to travel to the your home country to provide or sign documentation.

The second option would be to get a remortgage on existing property to release equity.

Remortgaging a property is a common alternative to opening a new loan account, and success depends on your credit rating and what outstanding mortgage you still owe. You don’t need to use your existing lender and can get advice from a broker or gather quotes for yourself, but you do need to let your new lender know that the money will finance a house abroad.

Pros

• You may find interest rates are more favourable on a second mortgage.
• You might be able to re-value your home and get more than your original mortgage.

Cons

• You may be at risk if you cannot repay either mortgage (mortgage insurance can help).
• There are quite stringent rules to navigate when remortgaging.

A Spanish mortgage

Spanish mortgages can be better value for money. Variable Spanish mortgages are calculated by adding a margin to the Euribor rate, which is currently very close to zero, meaning you could get variable rates of 1.5% – 3% or fixed rates from 2% for up to 25 years. There are no restrictions on who can borrow money in Spain, but you will need to pay fees to open a Spanish bank account and get a Spanish speaking solicitor. Find out how to apply for a Spanish mortgage on our blog.

Pros

• Spanish institutions will have certain products tailored to suit Spanish property areas.
• Interest rates are low and local knowledge may help get you the best deal.

Cons

• Terms are more favourable towards Spanish residents, so if you intend to live there for more than 183 days a year, it’s worth registering as a resident before applying for your mortgage.

A dual mortgage

Spanish lenders are very accessible, transparent and reliable, but deposits on properties in Spain are higher than in the UK. Those without Spanish residential status may only be able to borrow 60-70% of the house price as a mortgage in Spain.

A solution is to raise money for a deposit via a financial institution in your country of residence.

Find out how Janet and James purchased their apartment in Barcelona using a combination of an interest-only mortgage from a UK lender for a 40% deposit plus a Spanish mortgage to cover the final 60% of the purchase price on our podcast.

Pros

• This is an efficient way to find the capital for your deposit and associated costs.

Cons

• Communications between 2 large financial institutions can slow down paperwork.
• Having no instant equity can be riskier. Be prepared to make a long-term investment and investigate market stability in the area.

Purchasing a buy-to-let property

You can support payments on a holiday home by leveraging rental yields. However, the specific buy-to-let mortgage products you find in the UK are not available in Spain. You can still apply for a mortgage in any of the ways we have explained but the lender won’t take your rental income into account during the application process.

It’s advisable to set rent between 115 -125% of the mortgage repayments, so make sure this is feasible in your property before you invest. Your real estate agent may help you predict rental income during your viewing process.

You may be eligible to deduct interest and amortisation from your taxes, so it’s worth seeing a tax-expert to get advice on the region-specific tax laws.

Buying through a company

Opening a Spanish Limited Company (SLC), or using a home-based PLC to apply for a mortgage product will eventually allow you to offset costs or get a rebate on some taxes. However, it’s becoming difficult to find banks willing to loan to either SLCs or PLCs. This is both because the Bank of Spain has to scrutinise loans to protect against money laundering and fraud and because the lending bank will need to perform yearly checks against company infractions or bankruptcy proceedings. It’s advisable to speak with a reputable mortgage broker to find the right mortgage in this circumstance.