Before making your offer you need to know how much you have to spend. You may already have an idea or indeed have the cash in the bank (lucky people) but many people will rely on getting a mortgage. You can either get a mortgage on the property here in Spain, or remortgage a property in the UK or indeed do both. You will need to budget for 110% of the purchase price plus removals, refurbishment, furniture etc.

Remortgages on UK property to raise finance

We can recommend mortgage brokers in the UK if required, but in general the following guidelines apply subject to status.

You can normally borrow up to 5 x highest salary + 1 x second or 3x joint gross salary.

You can normally borrow up to 95% of the value of the UK property.

You will have a much wider selection of rates and schemes than in Spain, eg., Discounted Rates, Tracker Rates, Capped Rates and Fixed Rates although over the last three years the Spanish mortgage market has become more sophisticated.

The base rate in the UK is higher than in Spain. As of January 2005, this was 5.5% for the UK against 4% in Spain. This is the interbank base rate rather than the mortgage rate but does set the base line for mortgage rates thereafter.

You will have a variety of repayment options in the UK, eg, Repayment over 10 to 40 years, ISA mortgage, Pension mortgage, Endowment mortgage etc. In Spain you tend to be mainly offered repayment mortgages up to 40 years with the option of up to ten years of interest only at the start

 Mortgages in Spain

In Spain, as a non-resident or new resident, you can borrow up to 100% of the purchase price of the Spanish property up to a maximum of 70% of the value of the property  but 80% is more common. Please note it is very common for the value put on the property by the valuer, to be less than you are paying for it, because valuers just look at what other properties have sold for and how many square meters you are buying. These prices do not take into account any black money (cash) paid in previous property sales or the condition of the properties. Black money is part of the purchase price, normally cash, which is undeclared money to reduce tax liability. This is illegal but often done as a second contract for fixtures, fittings, furniture, etc.

If you want a report on the condition of the property, you must instruct a separate survey.  A bank value can be requested, free of charge before you exchange or indeed apply, so you know where you stand. General consensus suggests to assume a bank value of 85% of the purchase price (72.25%). But they can also value a property more than the purchase price, thus allowing you to get up to the 100% lending level. See our bargain page for the type of properties that will value higher than the purchase price.

Lending criteria tends to be affordability, ie, 35% of nett take home pay to pay mortgage payments (both in UK and Spain). They will want to see tax returns or P60's and three wage slips as proof of income. If you have given up your job in the UK to live in Spain you will need to be in the Spanish Social Security System, have an employment contract and at least a 3 months' employment record. If not you will not be able to apply for self certification which restricts you to about 50% of valuation.

Many banks giving mortgages to foreigners do not do the same level of checks as they do in the UK, so previous financial problems are not raised as a problem. Also it is easier to get your financing on existing UK income and buy as a holiday home, than somebody arriving in Spain looking for a job and somewhere to live. This situation is changing as Spanish banks begin to fully investigate and employ English speaking underwriters.

Interest rates are lower than the UK (at the moment) for example 3.8% for 12 months and a variable rate of 4.65% thereafter. Compared to the UK it is nearly 70% of the cost. They only have a few different schemes and lack the massive choice available in the UK. Discount for 12 months or a maybe a two year fixed. This situation is changing daily and new schemes are being released all the time.

Types of mortgages are limited to repayment up to 40 years. Interest only mortgages are rare but available.

You have to pay an average bank arrangement fee of 1% of the loan amount (deducted from the loan).

The Spanish Government charge a 1% tax on the amount of the loan!

Some properties are not acceptable security for the average Spanish mortgage, e.g. unregistered land, unregistered house, older property registered within two years and rustic land.

Developer Finance

The third style of financing is financing by the developer of a new development. This may be in the form of a private financing contract governed by Spanish Consumer Legislation passed in 1996 or financing that the developer has already arranged on the property with a bank or similar financial institution, which he is simply passing on to you with the property. These contracts must have all their terms and conditions clearly defined, but you must make sure that all the salient points are covered and ask questions where necessary with all replies in writing

This is just a very brief guide to a subject which is very complicated and constantly changing. We can recommend brokers in Spain, or banks directly in Spain, or UK mortgage brokers with over 20 years' experience.  Good advice can save you a fortune, for example a recent client took a mortgage with a local bank here in Spain and saved 5,000 euros a year in interest, compared to a Spanish mortgage with the Halifax.

Bank Transfers and Bank Accounts

There is a huge difference between what the high street banks charge to transfer money and what a specialist money market broker will charge. We saved 4,000 euros by not using the SPECIAL COMMERCIAL RATE offered by my Natwest branch of 20 years. You may also save over 1,000 euros in bank charges on transfers by using the right company. We can recommend which company to use.

You will need a Spanish bank account to receive funds into and pay funds from, for the completion. There are big differences in which bank to go to as far as language, service, fees, interest rates etc. are concerned. We can recommend the bank and make a personal introduction to your account manager.