How Brexit could now shatter dreams of buying in Spain

Now that Britain has voted to leave the EU, Brits can expect a tougher road if they want to move to Spain, not least because the fall of the pound has made property a lot more expensive.

How Brexit could now shatter dreams of buying in Spain
Photo: AFP

There are already anywhere between 700,000 and one million Brits estimated to be living in Spain, but now that Britain has voted to leave the EU, others may find it harder to pursue their dreams of a life on the Costas.

Just two weeks ago The Local reported that Spain’s housing market was well and truly making a comeback, fuelled by foreign buyers of whom Brits form the biggest group.

But the fall in sterling together with the threat of a recession in the UK as a result of Brexit, plus uncertainty over British rights to live abroad once the UK is outside the EU, could have a drastic impact on Spain’s property market.

The result of Thursday's vote sent the value of the pound crashing, recording its biggest drop in over 30 years, with financial forecasters predicting that it will continue to tumble.

This means for anyone thinking about a new life in Spain, they will now have to readjust their calculations dramatically to see if they can afford it. 

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“I can't help thinking this is bad news for the Spanish property market, and bad news for British expats in Spain, in the short term at least,” Mark Stucklin, of Spanish Property Insight, told The Local.

“The pound is down heavily against the euro reducing British purchasing power in Spain, and this Brexit result could trigger a recession in the UK, which would further hit demand, as would a fall in UK house prices that some experts are predicting.

“Will Brits now retire to Spain in the same numbers as before? Not if they lose the healthcare, pension, and fiscal rights they enjoyed as members of the EU,” Stucklin predicted.

“Things might work out okay in the end, but there is going to be a period of uncertainty that could drag on for years, during which Brits will have less confidence about buying property in Europe. British demand for property in Spain has been growing since 2013, but I think we will see a big reversal in the trend in the coming quarters.

Photo: AFP

“That's bodes ill for housing markets in Alicante and Malaga, where the British have been far and away the biggest buyers in recent years. It's not good for British vendors either, as buyers might now be harder to find. 

“If there is a bright side to this I hope it leads to serious reform in Europe to prevent a domino effect, and the Union ends up stronger as a result, but I wouldn't bet on it.”

While no one yet knows whether Brexit will make it legally more complicated for Britons to buy a property in Spain – the Spanish almost certainly won't want to scare away British buyers from the market – it certainly won’t help those who have already fallen foul of property regulations, an issue that could put off potential buyers.

“I do not believe that there is a direct impact on property rights but obviously for those struggling with illegal houses there may be an indirect effect if Britons lose their right to vote in municipal elections. Currently this right derives from membership of the EU. So, indirectly we lose our bargaining power,” said Maura Hillen, who campaigns for the rights of expat property owners in the Almanzora valley and is now a town councillor.

“In terms of rights lost… its early days and there is much uncertainty but points to consider are rights to health care, residency, possible tax implications etc… Much food for thought,” she said.

But for those wanting to sell up and return to the UK, the weak pound could prove advantageous, as long as they can find a buyer. 

“Given the thrashing of the exchange rates it is a good time to sell your house and buy sterling but not necessarily a good time to buy,” said Hillen.

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What the Euribor rise means for property buyers and owners in Spain

The rise in the Euribor interest rate, used to calculate mortgage payments in Spain, is causing big changes in the mortgage rates.

What the Euribor rise means for property buyers and owners in Spain

Looking to buy property in Spain? Already a homeowner here? Well, you may have heard something about rising interest rates recently.

Or perhaps changes to the terms of your mortgage. Or the Euribor – but what is it, and what’s going on?

What is Euribor?

In Spain, Euribor is the interest rate most often used to work out mortgage payments and to calculate both variable and fixed rates.

It is anchored to the interest rate set by the European Central Bank, and, as we are now seeing, quite responsive to global economic events.

It’s the interest rate that banks in the Euro Zone use to lend to each other, so when the base rate goes up, the Euribor does too, which sends mortgage interest rates across the Eurozone rising. 

Rising rates

Most Spanish mortgages with variable rates normally vary based on a variety of factors, but this number has been rising and in May 2022 saw figures of 0.240 percent (Tuesday May 17th), well above the average. 

The rises throughout May are leading many in Spain, and indeed across Europe, to wonder how high their mortgage rates can go, and when the rises will stop.

Banco de España has estimated that the increases could range from anything between €35 a month to an additional €400. Bankinter predicts the Euribor rate will finish the year at a staggering 0.40 percent, but, more encouragingly, Caixabank’s prediction puts it at just 0.13 percent by the end of 2022.

On, a website that tracks the index on a daily basis, they suggest that the market consensus predicts the Euribor will finish at around 0.3 percent at the end of the year, but could reach as high 0.8 percent in 2023.

All of them agree, and most other economic indicators suggest, that whatever the figure at the end of the year, it will remain positive, so it seems almost certain that mortgages will continue to rise throughout 2022 at the very least.

This instability, in addition to global inflation and supply chain problems, could mean that mortgage rates will be affected at least until 2023, with some predictors even signposting 2024 as the possible end of a rise in mortgage prices.

With things uncertain in the mortgage industry, and the world economy more broadly, perhaps you’re thinking of ways to try and insulate yourself from the climbing interest rates.

How to protect yourself from the rising rates

One way to weather the storm of interest rate increases is to change your mortgage from a variable to a fixed rate, either by negotiating with the your bank or by changing bank altogether – a process known as subrogation.

According to data from MyInvestor, during March and April the number of subrogations has started to rise.

Subrogation basically means switching the mortgage from one bank to another to change its interest rate. Although it does involve certain charges in order to do so – you pay the valuation of your house, which normally costs a few hundred euros, and a fee charged to the bank you are leaving, which can cost up to 2 percent of the outstanding amount – it could, and probably would, work out cheaper than paying the hiked interests rates over time.

You could also try and take out a new mortgage with another bank and use the borrowed money to settle the loan. This is, of course, a more expensive option as you have to pay the appraisal, the commission for early repayment of the current credit (again, up to 2 percent of the outstanding amount) and the expenses associated with its cancellation of registration, which normally runs to around €1,000.

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