Buying a new home in Spain - financing your Spanish property
When you start looking for that property in Spain the first thing you must ask yourself is - can I really afford it? The 1980s saw a spate of non-nationals buying Spanish property by re-mortgaging their family homes. This had the effect of stretching their finances to the limit and often lead to the repossession of both their UK address and their home in Spain.
You do not want to jeapordise your family’s assets so think carefully about what you are looking for and how much it will cost you. Do not simply accept the asking price of a property in Spain. Do your research and find out what the other costs are involved in buying Spanish property.
Arranging finance for your home in Spain
If you are unable to buy outright but remain determined to get onto the Spanish property ladder you must think about how to finance. Buying property is always a huge financial commitment, even more so in a country with different laws and banking systems. For this reason you should always seek professional legal advice at all stages of the process.
Most purchasers take out a mortgage as a way of securing the funds necessary to buy their dream home in Spain. The question they face is whether to do so through a UK-based broker or a foreign lender. You can use our service directory to help you find UK and Spanish mortgage lenders and finance brokers
A Spanish mortgage on your Spanish property
Deposits for property in Spain tend to be 20% of the value of the property. You may be able to obtain up to 80% of the value (not cost) of the property in Spain although some lenders will not offer a mortgage past 60% of the value. This may leave you with a shortfall to make up and seeking finance elsewhere.
Although the market is growing the number of mortgage products available for property in Spain remains low. Interest rates are normally tied to the European Inter Bank Offered Rate (EURIBOR), which tends to be lower than the Bank of England rates.
Your monthly mortgage payments should be less than one-third of your income. Using the Spanish property as security on your loan, the banks also have no right to repossess your UK assets, even if you default on the loan.
Buying a home in Spain with a UK mortgage
A mortgage must be secured by property in the same country. Therefore to buy your home in Spain this way would involve releasing equity on your UK home.
Most lenders will allow between 75 and 96% of the value of your home to be released to allow you to buy a Spanish property. More products and flexibility exists within the UK market. Although a UK mortgage may save you money in set-up fees the interest rate is likely to be higher.
There are also UK banks in Spain and they have introduced more features of UK mortgages to the Spanish property sector whilst still offering low European interest rates. There may be other advantages and conveniences to going for a lender affiliated with your bank at home.
Currency fluctuation – a risk to your villa in Spain
The risk Spanish currency issues pose to the feasibility of you being able to afford a home in Spain should not be underestimated. The volatility of currency fluctuation means that a Spanish property sold for 200,000 euros in December 2002 cost £127,400. Three months later and this had risen by a massive 8%, meaning the property in Spain was now £10,500 more expensive.
