IN the first part of this piece, we discussed interest rates in Spain and the kind of client profiles that Spanish banks look for. In this second article, we take a look at mortgage terms and repayment, the costs of lending, and the benefits of using a mortgage broker.
What terms are available for Spanish mortgages?
The term of a mortgage, rather than the terms and conditions of the agreement, refers to the duration of the loan, usually expressed in the number of years you are required to make payments to the lender until the capital and interest are paid off.
The maximum term in Spain may be up to 30 years, for younger clients with higher savings and/or earnings, but Howard says 25 years is more frequent. Spanish citizens and long-term residents may find it easier to be eligible for longer terms, but non-residents of Spain should also be able to secure 25-year terms.
Partial or total repayment is permitted under Spanish law, with penalties for fixed-rate mortgages levied at a maximum of 2% of the amount lent up from 1-10 years and 1.5% thereafter, Howard notes. Clients may be subject to penalties if the bank makes a loss on the mortgage because of early repayment, but it is generally cheaper to pay off your mortgage earlier if it is a variable, rather than a fixed-rate loan with penalties for variable-rate mortgages limited to 0.25%. These can only be charged by the bank in the first five years of the term.
What are the costs of getting a mortgage in Spain?
To cover the costs associated with a mortgage, you should generally budget around 10-12% of the purchase price, Howard recommends, although he notes that stamp duty (Actos Jurídicos Documentados or AJD in Spanish) varies from region to region. In Andalusia, where the Costa del Sol is located, the rate of stamp duty due has been reduced from 1.5% to 1.2% until the end of 2021.
While some lenders do not levy additional costs for mortgage arrangement fees, property valuations and legal fees, others apply fees that can be up to 1-1.5% of the loan capital, as Spanish banks are now required to pay the Tax Authorities (Agencia Tributaria or Hacienda, in Spanish) a mortgage tax of 1.5%.
Many banks get around this by requiring mortgage customers to contract a variety of associated financial products, including home and life insurance policies, alarm and security services, or even to place money into deposits, investment funds and shares, Howard says. These can add anything 1-2% to the cost of a mortgage, he notes, and should be taken into account when you budget.
If you take out a mortgage in Spain, you are required by law to sign a separate deed in front of the notary public. Fees may vary, but are based on national fixed prices for such services. You are also obliged to register the mortgage with the Spanish Land Registry. Fees are typically 200-400€.
What are the advantages of a mortgage broker?
Anybody can walk into a bank, or even use an online mortgage comparison site, to search for the nominal interest rate, terms and conditions of a mortgage in Spain. Each bank will then ask you to fill out forms, provide personal information and then wait a while until they get back to you with a mortgage offer, if they’re interested in having you as a client.
Or, Howard suggests, you may wish to use the services of a broker, such as Mortgage Direct, as “everything in Spain is negotiable and due to the mortgage regulation, there is no ‘one bank fits all’ scenario”. Firms like Mortgage Direct offer clients a series of advantages, Howard says, such as: “We have access to the very best interest rates, provide independent advice on additional products and offer a fast, no-charge, no-obligation ‘pre-assessment’ that profiles clients before they apply.”
Speed is also of the essence, particularly in sought-after areas like the Costa del Sol, where high levels of demand can mean properties sell very quickly. Howard explains that getting a decision from an individual bank can take anything from weeks up to months, while Mortgage Direct generally is able to provide an offer within 7-14 days, once the client’s documentation is in place.
In terms of fees, Mortgage Direct offer very competitive rates, with an initial administration fee of 695€ for their services only when a client accepts their proposal and decides to move forward with a formal application. Once the loan has been arranged, the firm then invoices an additional 0.6% fee.