Are you one of a growing number of people planning on buying a holiday home in Spain?
Or have you decided to expatriate, buy a Spanish home and live in it permanently?
If so, you may be about to begin your hunt for an international mortgage to purchase real estate abroad…
The task of finding the best international mortgage can seem like quite a daunting one at first glance with many domestic, overseas and international providers vying for your business. But don’t panic! Tackle the task head on, ensure you secure yourself the best possible international mortgage or property finance deal today and you will save yourself tens of thousands in interest payments over the lifetime of your mortgage.
You can begin your search for the best loans and repayment vehicles online which should help to make the whole process more convenient and time efficient for you, and this article will also help make the search for the most ideal and personally suitable finance method that much simpler.
There are five basic types of finance arrangement available internationally; to enable you to determine which one suits you and your circumstances best there follows a brief description of each: –
1) International Mortgages
Depending on the country you’re resident in and the country you’re considering buying property in some domestic lenders offer international mortgages for overseas real estate purchase.
An example is Lloyds TSB in the UK which offers resident Britons who already own a home in the UK an international mortgage scheme specifically for the purchase of real estate in Spain.
The types of mortgage and repayment vehicles are standard to the domestic country (e.g., UK or US) though there is often the added criterion that the purchaser is already a home owner in the local country and any mortgages available are only for up to 70% of the purchase price.
2) Local Spanish Mortgages
As Spain is largely geared to the foreign property buyer it’s often possible to raise a mortgage locally in Spain especially when you approach one of the larger international bank’s subsidiaries. It’s still important to make sure you understand the local terms and conditions of the loan and the repayment vehicle as well as checking and comparing the interest rates available to you with those available from an international lender ‘back home.’
3) Expatriate Mortgages
If you’re already an expatriate whether in Spain or another overseas country and you want to buy in Spain or you’re interested in buying a home in your originating country for investment purposes or as a base for you to return to at some point in the future, it can be tricky to secure a mortgage.
If you had a strong credit history before you expatriated and you’re now in receipt of income to support your mortgage application there are a number of lenders specifically interested in attracting expatriate business though. Some of the major high street lenders will charge you a bit of a premium for the ease of application and service they offer and it’s actually worth while shopping round on the internet to see who else is offering specific expatriate mortgages.
Usually you should be able to borrow up to 85% of the property’s value and when it comes to proof of income this can be made up of earned, pension, investment and rental income.
4) Equity Release and Second Mortgages
This is of course the simplest and most popular method being used currently for the purchase of holiday homes overseas by many buyers. In the UK especially, where the housing market has significantly strengthened over the last 5 – 7 years, many people have built up substantial equity in their homes and are now releasing this ‘extra money’ to purchase property in Spain in cash.
If you consider this method you must accept that the additional sum you add to your mortgage will incur interest, it will have to be repaid over the term or at the end of the term of your mortgage and that the whole loan is secured on your main property.
5) Installment Payments
You might like to consider purchasing property off plan as this can give you the option to pay for the real estate via a series of installments or stage payments that you can save up to fund during the build period.
After paying the securing deposit your installment dates and amounts will be written into your purchase contract enabling you to budget accordingly. Clearly this method would particularly suit those with a high level of disposable income.
Once you have determined the most suitable method to suit your requirements and circumstances you can begin your search for a lender if applicable. Consider searching the internet, using forums, expatriate and international property sites, examining lenders sites and you can also listen to personal recommendations from friends, family and colleagues who have already undertaken property purchases in Spain.
Our page on comparing home insurance in Spain will help you get the lowest rates.
After 10 years in the Spanish property industry, it still amazes me just how many people visit Spain intending to buy a property with the assumption that getting a mortgage in Spain will be easy.
Incredibly, many don’t actually know how much they will need to borrow as they don’t understand the buying process well enough or the costs involved, while others haven’t the first idea as to what their repayments might be as they don’t properly understand the banks’ lending criteria for their secure eloan mortgage.
Many don’t even understand what rates and terms they offer or the types of mortgages that are generally available. The lesson as always, is to be prepared.
Note also the following information about Spanish mortgages. They are slightly different to those offered in the UK.
At the time of writing in April 2010, bank mortgage rates are at all-time lows. Like all banks across the world, Spanish banks use a base rate known as the Euribor as the basis for their mortgage products. As a prospective borrower you will be offered a percentage over and above the base rate for your mortgage or personal eloan.
These days, as banks seek to recapitalise after years of irresponsible lending, you will be lucky to borrow at less than 2% over base rate. Gone are days when you could sign a mortgage deed for a little under 0.5% over the Euribor.
In addition to the taxes, land registry, notary and legal fees that you should factor into your budget (approximately 10%), you should ask your bank about their fee for the opening commission. Many will try to charge you 1% or more. Note that the law states that no bank has the right to charge you more than 0.5% for the privilege. Be very careful here.
Unreasonable Fees For Bankers’ Drafts
Unbelievably, many banks will charge you outrageous amounts for simply the production of a bankers’ draft that you will give to the vendor at the notary. I have seen customers charged between 250 euros and, in one case, 3,000 Euros for this simple administrative task. In the latter case, the client didn’t even have a mortgage with the bank but had simply made a transfer from the UK in order to convert his funds to Euros.
Large Deposits Required
One assumption that many make is that near 90% or 100% mortgages will be available in Spain. These days this is virtually impossible. Expect no more than 70% than your bank’s conservative valuation which may not be the price you have agreed with a vendor. In the past, it was possible to achieve a higher or over-valuation resulting in zero down interest only loans.
Note these days have long gone. Spanish banks want to see clear evidence of your own funds and your ability to make the monthly repayments.
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Main author and owner of SpainMadeSimple.com which was started in 2004 when I first moved to Spain.
Spain Made Simple features expert advice on all aspects of moving to and living in Spain as well as useful tourist information and travel tips.
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