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PROPERTY

Spanish mortgages: Ten things foreigners should know before getting one

Although Spain's new mortgage law are good news for all prospective buyers, there are important things to keep in mind if you’re applying for a mortgage for a property in Spain, especially when differentiating between resident and non-resident borrowers.

Spanish mortgages: Ten things foreigners should know before getting one
The beautiful village of Valldemossa on the Balearic island of Mallorca. Photo: Patrick Baum/Unsplash

Favourable new mortgage laws for all

In the past, Spain’s mortgage laws tended to side with the banks and were often punitive to borrowers.

But in 2019 the country rolled out new “hipoteca” (mortgage) laws with favourable conditions for nationals and foreigners (resident and non-resident).

These include longer default periods before repossession, more mortgage fees to be paid by the banks and the green light for borrowers to convert foreign currency denominated mortgages into euros.

FIND OUT MORE: How Spain’s new mortgage laws could affect homeowners

Non-residents pay more than residents

Non-residents will pay higher interest rates than foreign residents in Spain, “around 2.5 percent for 20 years” according to Ricardo Gulias, director of Spanish mortgage consultancy firm Tu Solución Hipotecaria, and a variable rate of 3 percent added to the Euribor index.

The reasoning for this is that non-residents are buying a second home and don’t offer added guarantees such as life insurance or a salary paid into that mortgage-lending Spanish bank.

Banks are also more likely to offer only a fixed type of mortgage to non-residents.

Non-residents get less financing

If you spend less than 183 days in Spain you are less likely to get financing for a Spanish mortgage and will have to put a bigger amount down initially.

Whereas residents will usually be lent around 70 to 80 percent of the total property amount to be paid and get better interest rates, non-residents can only expect a Spanish bank to cover 60 percent of the cost.

Again, this is due to the fact that if Spanish Banks pursue assets in the event of a default, the only thing they could have access to would be the property in Spain.

Credit rating required for non-residents

As an extra guarantee, the bank is likely to ask you for a credit rating statement from your bank in your country of origin.

Experian in the United Kingdom and Transunion in the United States are two companies that provide these services.

Fuerteventura in the Canary Islands is a popular place for foreigners to buy property in Spain. Photo: Niklas Schoenberger 

Longer repayment periods for residents

Unfortunately for non-residents, Spanish banks are far more likely to only give mortgages that are no longer than 20 years, whereas for residents it’s up to 40 years, so their monthly payments are likely to be considerably higher.

Higher taxes when selling for non-residents

Here’s another important factor to keep in mind when calculating how much money you will need to borrow.

When you buy a property in Spain, you need to take into account that the property transaction cost will be 10-12 percent of the property value (it was up to 15 percent prior to 2019). 

This applies to Spanish nationals and foreigners, whether they’re residents or not.

When it comes to selling a property, non-resident sellers have to factor in the Non-Resident Income Tax (IRNR) and the Tax on the Increase in the Value of Land of Urban Nature (IIVTNU or municipal capital gain tax).

This 3 percent IRNR retention on the selling price goes directly to the Spanish Tax Office whereas municipal taxes are usually decided on a more local level. 

READ MORE ‘It’s absurd’: How Britons who let out properties in Spain could see taxes triple after Brexit

Nationality matters for non-residents 

There are reports that when it comes to getting a mortgage from a Spanish bank as a non-resident, your home country can play a big part as to whether it’s approved.

According to IMS Mortgages, prospective buyers from the EU, the US, Australia, New Zealand, Hong Kong and Singapore can get financing for a mortgage relatively easily.

Whereas mortgage applicants from the Middle East, India, China, Russia and Africa struggle by comparison.

At first, this comes across as a discriminatory policy but according to Ricardo Gulias of Tu Solución Hipotecaria (Your Mortgage Solution) “banks have started specialising in operations with clients from north, central and eastern Europe and China”.

This suggests that if there is more demand for property in Spain from emerging economies, more bureaucratic barriers will be broken down for these nationals.

Non-residents have to translate and apostille documents

If you’re not working and living in Spain, some of the documents you’ll need to provide for your mortgage application will no doubt be in another language, and as with everything else that’s official in Spain that’s a big no-no.

Aside from having to pay a sworn translator to do this, some banks will also require you to get the Hague Apostille stamped on some of these documents as an international authentification.

However, residents do have to get documentation notarised when applying for a mortgage as well.

You will also need to get a “Número de Identificación de Extranjeros (NIE) , the Spanish identification number for foreigners, even if you are a non-resident.

Easier to shop around if you’re a resident

Some of Spain’s smaller banks won’t take the risk with non-residents, meaning that choices are more limited.

However, larger banks such as Banco Santander, BBVA and CaixaBank do offer mortgage deals to non-residents, and it’s also possible to get a mortgage for a Spanish property through an international bank such as Chase or IMS or by reaching out to a mortgage broker who specialises in foreign clients. 

It’s not all bad for non-residents borrowers

Despite the fact that mortgages for non-residents are clearly not as favourable as for residents, there are still some positives for this group.

The initial costs and charges related to the mortgage contract are paid by the bank, so the mortgage costs work out cheaper.

The only two charges that can be assigned to a non-resident client are the property appraisal (avalúo de la propiedad ) and the settlement fee (tarifa de acuerdo), and some Spanish banks pay for these as well.

Non-resident borrowers who aren’t from the euro zone can also pay their mortgage in the currency of their country at the exchange rate applicable at the time, if they stipulate it in the contract. 

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For members

RENTING IN SPAIN

How to rent a property in Spain without a job contract

When looking to rent in Spain, property owners and estate agents often ask for a 'nómina' and work contract - something that can prove tricky if you're self-employed or not working. Here's how to prove your solvency and secure the rental.

How to rent a property in Spain without a job contract

If you’re looking for a house or apartment to rent in Spain, there can be a multitude of different factors to consider.

The price, the size, the location, the neighbourhood, which floor the flat is, on and whether there’s a lift, whether it’s interior or exterior, how many apartments there are per floor, whether to go private or through an estate agents and, of course, the search itself.

When you’re going on visits, you’ll have to contend not only with owner or agent trying to ‘sell you’ the place, but also explaining the terms and conditions (often referred to as las condiciones or requisitos para entrar).

In Spain, the process can be a little complicated. Often landlords ask for two months deposit upfront, and those that go through an intermediary estate agent tend to ask for two months, plus an extra month (plus VAT, or IVA as it is in Spain) that goes to the agent! It certainly adds up. 

Not only that, but very often in Spain you are expected to prove you will be able to pay your rent every month. And it’s not as simple as you might think. 

Most estate agents or landlords think hat the best way to ascertain this is by you providing proof of an employment contract (contrato laboral) and recent payslips (la nómina) that demonstrate you are paid the same amount every month, and that it’s enough to cover the rent and other expenses.

Here’s where things can start to get tricky for self-employed people (known as autónomos in Spain), who number more than 3 million in Spain.

Regardless of whether your monthly autónomo earnings are high pretty much every month, regardless of how consistent they may be, or even if you have regular clients, the irregular and insecure nature of Spain’s work market have ensured that landlords and realtors take a rigid attitude towards the rules.

This is especially true following the turbulent economic times of recent years as we’ve moved from global pandemic to war in Europe to spiralling inflationary pressures on the global economy.

Landlords want to be sure you can pay the rent. Therefore, they may favour a waiter with a nómina of €1,000 a month over an autónomo who can prove monthly earnings double that for the previous six months. Doesn’t seem fair, right? 

READ MORE: Why you should be raising your rates if you’re self-employed in Spain

Well, that’s often how it can be in Spain. Fortunately, if you find yourself in this situation, there are various ways you can convince potential landlords that you are financially solvent enough to rent their property, with or without a fixed contract

The law

Now, it is not unheard of – in Spain nor anywhere else in the world – for an estate agent or landlord to try and squeeze more money out of you, or to add on some extra charges. In most people’s experience, Spanish estate agents and landlords are no better or worse than anyone else, but it’s worth keeping in mind.

It has been known, however, for some in Spain to try and get an extra month’s deposit by telling potential tenants that they need a nómina by law in order to rent a property in Spain, and that they’re doing you a favour by allowing it.

Simply put, this is not true. According to Spanish law, more specifically, La Ley de Arrendamientos Urbanos (Urban Renting Law), although many landlords require some form of financial insurance, there is absolutely nothing to say a nómina is necessary to rent a property in Spain. A deposit is legally required, but a nómina?

Helpful? Certainly. Legally necessary? Definitely not.

That said, if you explain to the property owner that you’re self-employed, some landlords maybe be willing to make other arrangements to ensure the rent.

Here are some options, and other bits of paperwork that could help:

Aval bancario: Like a bank guarantee, some landlords request tenants without nóminas or work contracts to set up an aval bancario.

You must pay in an agreed amount (often worth the value of two or three months of rent, sometimes more) into a bank account that you’re a customer with.

It’s money that you cannot touch for an agreed period of time and which you pay some interest on, and in the event that you do not pay your rent, the landlord will be able to access said funds.

This is not the cheapest way to rent a property, but it may be one of the more effective ways of convincing a landlord to accept you as a tenant.

If you pay your rent diligently every month and prove that you are reliable, after a year you should speak to your landlord to ask them them to cancel the aval in order to not continue paying interest on it and recover your stored money.

Anuncios de particulares: If you’re using the usual rental search engines like Idealista or Fotocasa, the vast majority of rental adverts are from estate agents (inmobiliarias) who ask for all the proper documentation, including contracts and pay slips, and often the extra month’s rent as a fee.

When you’re making your search, keen an eye out for anuncios particulares , which are private ads direct from landlords.

Sometimes if you deal directly with the owner themselves, they are less strict about rules with regards to nóminas and contracts. Maybe you’ll get really lucky and find a landlord that takes a liking to you and who only asks for one month’s deposit.

Seguro de impago de alquiler: A landlord may be more likely to rent to you even if you don’t have a nómina when they have seguro de impago de alquiler, non-payment rental insurance. It protects the landlord for the duration of the contract and covers the rent and any repairs or legal fees.

IRPF: IRPF is Spain’s personal income tax, and providing your most recent income tax return could help put your potential landlord at ease by proving that what you’ve earned over the last year could cover the cost of the rent.

Seguridad Social: Similarly, providing proof of your social security payment can help prove your financial solvency.

Bank statement: a simple bank statement to show account activity – and that you have enough to pay the rent and deposit, of course – might ease the mind of your landlord as it allows them to see your incomings and any debts you might have.

IVA: Showing your VAT (IVA in Spain) returns could be another tool that, when used in conjunction with other ways of proving your solvency, could convince a landlord to rent to an autónomo.

Pensioner documentation: If you’re retired and you’re looking to rent, any official documents which show how much pension money you receive every month, along with bank statement reflecting savings, should suffice to convince a landlord or estate agent that you’re solvent.

READ ALSO: Renting in Spain: Can my landlord put up my rent due to rising inflation?

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