The whole process of buying any type of property or land in Spain is strictly regulated.

Firstly you should decide how you would buy your property. There are three options:

• Buy for cash - a straightforward option, but once capital has been invested in a Spanish property it can be difficult to release equity although not impossible in some circumstances.
• Re-mortgage your main home to raise the cash - again, a straight forward option and one that doesn't involve you having to deal with any Spanish banks, but you will probably find that the interest rates charged by banks and building societies in other countries may be higher than interest rates in Spain. Bear in mind the mortgage warning "Your home may be repossessed if you do not keep up repayments on your mortgage". You may be putting your main home at risk for the sake of your holiday home.
• Finance your property with a mortgage from a Spanish bank or mortgage provider.

Prepare yourself for the initial costs

Whether you are buying for cash or with a mortgage there are some costs you are going to have to fund yourself.

• The Deposit as your agreement to the purchase - On the day you sign the Option de Compra (the sales agreement contract) you will be required to pay your deposit, usually between 5% and 10% of the purchase price for older properties. For new properties under construction the payment terms are made in stage payments as the construction is completed. These terms should be negotiated through your agent or directly with the constructor. It is advisable to pay your deposit cheque to your agent who is representing you and not to the vendor. The deposit is held by the agent until completion.
• Purchase Costs - For all property and land you will pay a 7% of the purchase price, which is a property tax that goes to the Spanish Treasury. In addition you will have Notary fees and land/property registration fee, which varies according to the purchase price of the property. You can choose your own Notary.
• Agency fees - Normal commission is 5%, which is included in the sale price.
• The costs of a mortgage

Mortgage

Mortgage arrangements

Normally, based on their valuation on the property, Spanish banks will lend between 60% and 70% to non-residents and 70% and 90% to residents. They will send a valuer to assess the value of the property, the cost of this is included in the charges made by the bank for the mortgage application, which varies according to the purchase price of the property allow about 1% but banks vary in their charges and can often be negotiated. Once you have applied for the mortgage you will need funds to cover the cost of the bank charges.

The essential elements for qualifying for a mortgage

1. Sufficient income to service your mortgage
2. Life assurance to cover the terms of your mortgage, banks will insist upon this

Working out your price range

If you need a mortgage to buy your property, you should establish just what price range you should be looking at and whether you have enough cash funds for the deposit and legal fees and that your income is sufficient to afford the monthly cost of your Spanish mortgage.

You should now be seeking professional advice, about the basic lending criteria and the various options and mortgage products available to you. Again you have a few options:

• Go direct to the Spanish banks and mortgage providers - the majority have English speaking staff, others do not - which may cause you difficulties. They all have their own lending criteria - how much they will lend you, the term of the mortgage, what mortgage products they offer and how much they will charge for their arrangement fees.
• Use the services of an established mortgage broker, who will advise you about how much you can borrow and the mortgage products which will best suit your circumstances. Your mortgage broker may save you some time and will know which lenders to approach on your behalf, whether it's dependent on the amount of deposit you have available or whether certain conditions should be taken into consideration, and will provide you with quotations from the lenders who are most suitable for you. Throughout the mortgage procedure your mortgage broker will liaise between you and the lender - very useful if your language skills are not that good. Mortgage brokers who are registered in Spain receive their commission directly from the lender and generally do not charge you a fee - but you should check - it is not always the case.
• The Inmobilario (estate agent) may offer a mortgage service and usually will offer a service similar to that of a mortgage broker.

Banks will ask for pay slips if you are an employee or one or two years accounts if you are self-employed and a tax declaration on both cases from your country of tax residence.

Life assurance

It is a requirement that all mortgages in Spain are covered by life assurance. Many of the Spanish lenders insist that you use their policies and that it covers all the terms of your mortgage. Some lenders have different policies and insist that full disability cover is included as well as life cover.

Finding your ideal property

Much information is readily available from magazines and Internet websites advertising properties for sale in Spain; it is very easy to get an idea of what type of property is available and at what cost before you actually start your search.

There are many ways to search for properties: estate agents, property magazines and ''home hunters". In more popular or urban areas you will probably find estate agents who offer an English speaking service.

Think carefully about the location and type of the property depending on whether you plan for it to be your main residence, second home, holiday home to be let out on occasion or a property to be let as an investment for the future.

Make a list of the important elements - the purchase price, the overall size and number of rooms, is a sotanos (cellar) or garage essential, would you prefer a garden, terrace or balcony, etc - it will keep you and your estate agent or "home hunter" on the right track to find your ideal property.

The type of property and it's condition is also an important consideration. There are certain types of properties that will not be acceptable for mortgage finance and the property should be classed as "habitable" meaning structurally sound and having the basic utilities of electricity, mains water and sewerage system, all conforming to the current regulations.

All properties that are registered on Registro de la Propiedad (Land Registry) can be mortgaged.

Buying to renovate or build a new property demands careful pre-planning. Certain Spanish building regulations are very different from other countries and permission has to be granted from the local Ayuntamento (Town Hall). These vary from municipal to municipal and within each municipality there may be different zones that have different regulations regarding the minimum amount of land on which you can build. Detailed applications must be completed for the town hall (certificate of town planning/urban development) and other documents, which state what developments are allowable on the property and its land. These permits are usually already obtained or will be obtained by the agent or the constructor before you sign.

You will need the advice of an expert - an architect or surveyor. If you are relying on mortgage finance for renovation works, then the works will have to be completed by tradesmen who are registered in Spain. Registered tradesmen have the correct insurances covering their work - it is the essential guarantee for the bank or lender.

Purchasing your property

Once you have found a property that is suitable and the vendor has accepted your offer, you will be required to sign a sales contract, the Option de Compra.

Option de Compra

The seller (vendor) or agent can draft the Option de Compra, which will be written in Spanish, but will usually have an English translation. Whoever is named as the purchaser(s) and if you are intending to use mortgage funds, the same name(s) must appear on your mortgage application. The Option de Compra is a legal contract, you should read it carefully and consult your Notary before signing it to check that all the details and conditions are correct, such as:

• Details and identities of the vendor and yourself (the purchaser)
• A full description of the property
• The surface area of the property and land
• The purchase price, the breakdown of fees and who will pay each fee
• Details of the sales agent
• Details of any fixtures and fittings included in the sale
• Details of your mortgage, the date of when you should have your mortgage offer and the date of completion
• Any let out clauses (conditions/cláusulas crio) and the penalties that will be incurred by you or the vendor if completion doesn't take place

The let out clauses

For you, the purchaser, the clause crio protect the deposit you gave to the agent as part of your agreement to purchase the property.

• The most usual is a clause stating that your agreement to purchase is subject to you obtaining mortgage finance.
• Other clauses can be inserted, such as the vendor having to carry out necessary repairs or subject to the dimensions of the property corresponding to what is detailed in the Option de Compra and this is where expert legal advice is useful in the negotiation of these clauses.

On the day of signing the Option de Compra you will be required to pay your deposit to the agent.

The mortgage procedure

Lenders are obliged to ensure that any person applying for a mortgage is financially able to meet the mortgage repayments.

Apart from a completed mortgage application form, life assurance form and a copy of the Option de Compra that has been signed by both you and the vendor, you will need to provide photocopies of:

• Identity - passport or Residencia
• If you are employed or receiving a pension - 3 months payslips, P60's or tax returns, proof of any other income
• If you are self-employed or director of your own company - 2 years trading accounts and tax returns
• Banks statements (3 months) showing receipt of income and payment of loans. Statement proving your fund for the deposit to your mortgage

If you are buying a "new build" or wanting to include the costs of works/renovation in your mortgage you will need to provide further documents:

• For renovation or improvement works - professional estimates or invoices from tradesmen registered in Spain together with a copy of their insurance certificate
• For property to be built - the property title or preliminary sales agreement for the land, building licence, the building contract and plans
• For re-finance or equity release - the title deed or loan deed with the complete repayment table

Life assurance is mandatory to cover all the terms of your mortgage. Most of the banks and lenders insist their own in house policies are used and the medical underwriters may ask you to have a medical examination or tests.

When your file has been thoroughly checked and approved by an underwriter, the lender will request a valuation of the property. The valuation is not a survey. It is merely a valuation agreeing that what you are paying for the property and the amount the lender is prepared to lend is acceptable.

Should you be declined mortgage funds, either because of financial information, medical underwriting or the unsuitability of the property, the lender will advise you and issue you with a letter which you can use as your proof to have your deposit refunded to you as agreed in the Option de Compra let out clause.

Subject to everything about your mortgage application being acceptable, a mortgage offer (hipoteca) will be issued to you.

Some lenders will want their arrangement fee paid on acceptance of their mortgage offer and your life assurance policy will by put on risk from the date you signed the mortgage offer.

When the lender sends you the mortgage offer they also inform your agent of the details of the mortgage. Completion date should be concluded within 3 months of receipt of your acceptance to the mortgage offer.

Completion day

You can now arrange a time and date for completion to take place. It is your responsibility to instruct the Notary to request the mortgage funds from the lender.

Once you know the date you will be completing on your property purchase you will need to make sure that your Spanish bank account is open and funds are being transferred into it in time for the completion date and arrange for buildings insurance to be on risk from the date of completion. You will need to provide details of the insurance policy.

If you think you may be unable to attend the meeting to sign the Escritura (final deed of sale) you can give a trusted person or friend a power of attorney (a poder) which authorises them to act on your behalf if you unable to attend the actual signing.

The Escritura is signed by you (the buyer), the vendor and one Notary.

Once the Escritura has been signed and witnessed you will be requested to pay all the taxes, land registry fess and mortgage. A few months later you will receive a certificate informing you that the title has been registered. The original title deed is returned to the Notary and you can collect the deeds and the Notary is able to make authorised copies

Mortgage products and their uses

Re-mortgaging or re-financing has been virtually impossible, but recently (during 2004 and 2005) there have been significant changes in the way some of the banks and lenders are able to offer solutions, subject to their terms and conditions.

A mortgage can be used to:

• Purchase a property which may or may not need renovation or improvement works
• Purchase a new property or one under construction
• Bridging finance - only available when selling a property in Spain to buy another Spanish property and only if supported by a new mortgage
• Re-finance an existing mortgage on your Spanish property and would like to reduce your monthly payments and/or benefit from lower interest rates
• Replace a loan in another currency that you used to purchase your Spanish property and now would like to pay it back and take out a new loan in euros
• Release equity from your Spanish property

Choosing the right type of mortgage that is suitable for you and your circumstances is essential.

Capital & interest repayment mortgage (variable rate)

Probably the most flexible of mortgage products. You know what your repayments will be. The interest rate applicable to your loan is revised on a regular basis. Should interest rates fluctuate, your repayments stay the same - only the term of your loan is effected. A rise in the interest rate will increase the term of your mortgage. A fall in the rate of interest will reduce the duration of the loan. You are able to make lump sum payments or redeem your mortgage early; early settlement usually attracts a penalty of 1 %, which is negotiable. However, if you do convert to a fixed rate you will have to pay a charge in the event of early redemption.

Capital & interest repayment mortgage (fixed rate)

The repayments are fixed for the whole term of the mortgage. You know exactly what you will be paying each month and how many payments you will have to make. Fixed rates are usually higher than variable rates. Financial penalties can be charged for redeeming your mortgage early, or even changing to a variable interest rate. Each bank and lender will differ and it is advisable to check exactly what their financial penalties are.

Interest only

The majority of interest only mortgages that are offered by the Spanish banks are very rarely offered to non-residents

The professionals involved with property purchase

As soon as you start thinking about buying a property in Spain you are going to need professionals who will help and advise you.

The estate agent and property searcher

Estate agents (agents inmobilarias) are usually local to an area and therefore will only have properties for sale within that area. The agent earns commission from the sale of the property and will try to obtain the best possible price for the property, but will know what price the vendor will accept. They should also be able to give you an estimation of all the other fees and the property charges you will be responsible for when you are the owner.

Property searchers, as their title implies, will search for a property for you that is within your price bracket and matches your requirements. Many offer a personal service, taking you to view the properties they have short-listed for you. Some will charge a fee, whilst others will take a percentage commission from the inmobilaria instead.

The Notary

The Notary is a public official and given the title of Notario. The Notary is highly qualified in the Spanish legal system and is able to advise about the property transaction, family and succession, and corporate laws. The state confers powers on the Notary to legalise property purchase transactions that cannot be enforced by any other means. The Notary is deemed to a Public Official and provides security to the contracts he supervises and is liable for his professional acts. A Notary is responsible for the conveyance, preparing the various documents and confirming the seller's title to the property, checking that there are no other mortgages on the property, etc. The Notary is responsible for the legality of all documents that are signed before him in his personal capacity, which provides a guarantee for the client.

Mortgage Brokers

A mortgage broker will have agencies with various Spanish banks and mortgage providers, will understand how they react to certain cases and circumstances, and will act as your intermediary with the lender. Legislation ensures that mortgage brokers, or mortgage advisers, must have their own professional indemnity insurance and be registered with each bank and mortgage provider they represent.

With all the banks and lenders having different lending criteria and products, your mortgage broker should save you a considerable amount of time in finding a lender that is suitable to your personal requirements, be able to advise on the various different mortgage products, supply you with quotations direct from the lenders, their mortgage applications and life assurance forms together with guidance for which documents you will need to provide to support your mortgage application. A good broker will liaise directly with the lender, foresee and prevent some of the problems that can occur and guide you through the Spanish mortgage procedure.

Mortgage brokers receive their commission direct from the bank or lender they introduce business to. Some of those who are registered in Spain will not charge you fees for their services, but you are advised to check for yourself.

Architects and surveyors

An architect or surveyor should be considered if you are thinking of purchasing an older property or one that you want to renovate. They will have experience with planning and obtaining necessary permissions and certificates, and be able to give an estimation of the cost. They should also know of reputable builders who are registered as such and who have their own insurances to cover their work, which is essential if you are using mortgage funds for renovation or improvement works.

Property taxes and related topics

There are two taxes on all residential property. These are collected by the State for the local authorities. These taxes are assessed at individual rates according to location and can vary substantially. It is advisable to ask your estate agent for these details when you are looking at properties to buy.

Taxes IBI (local taxes)

Due on all property registered at the Land Registry except agricultural land. The owner of the property is liable for paying this tax. Even if you only use the property on occasional visits, if it is furnished and supplied with water and electricity you are liable for this tax. The amount of this tax will vary from one place to another and according to the value of the property.

Basura (rubbish collection)

Town Hall tax for the collection of rubbish.

Both the above are paid to a local government collection agency called SUMA, each town and village usually has a SUMA office.

Comunidad (community charges)

For those owning property such as an apartment within a complex there are maintenance and service charges to pay. You should consider these charges before purchase. The charges will vary according to the size and quality of the complex, whether there are lifts, swimming pool, gardens, tennis courts and other facilities.

Spanish Succession Laws - the Law of Inheritance

You are advised to make a Spanish will covering your assets in Spain with your Notary, if your situation is more complicated, because of being married more than once or having children and step-children, it is essential.

Capital gains tax and Wealth tax

This is currently changing and you need to consult a professional tax advisor.

Patrimonial tax

Yearly tax based on the rateable value of the property and is paid once a year (December).

Further Information

• See AngloINFO INFOrmation page Capital Gains Tax on Real Estate in Spain
• See AngloINFO INFOrmation page Spanish Tax & Taxation in Spain
• See the AngloINFO INFOrmation page on: Wills & Inheritance in Spain

Article by Peter Weaver AIF 0569 Web: www.inmo-weaver.com
Tel: +34 965 833 230 / e-mail
Copyright © 2001-2006 Peter Weaver All Rights Reserved (Written January 2006)

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