Buying Spanish Property
Buying Spanish Property – Although the process of buying a property in Spain can seem daunting to most people, the reality is that with the right help and advice, and by working with the right people, this process should be relatively straightforward. By understanding the role of lawyers in Spain, together with the various stages and costs of the purchase, you will be fully prepared for a stress-free transaction.
Will I need a Lawyer in Spain?
Once you have chosen your property in Spain, you should then seek the assistance of a lawyer (our section on Spanish Lawyers provides detailed information and advice). The lawyer will liaise with you during the course of the purchase, reminding you when payments are due and checking that contracts and deeds are all in order before signing on your behalf or asking you to sign the documents.
Do I need to check my contract?
Between paying your reservation deposit and signing private purchase contracts (normally a period of 7-28 days), your lawyer will check the contract to ensure that the property you are buying is free of debt, legally owned and (in the event of buying off-plan from a developer) that bank guarantees are in place to protect your funds in the unlikely event of the developers going bankrupt. Once the lawyer is happy with the contract, he/she will then ask you to transfer your funds to their client account in Spain. We would advise using a currency exchange specialist if you are a citizen of a non-euro country.
The amount of money required at this stage depends on the type of property that you are buying. Very often for resale properties, 10% of the purchase price is due when signing the contract. When purchasing an off-plan property from a developer, the payment terms will dictate the amount due at this stage. This figure normally varies between 20% and 50%.
Once the lawyer has received your funds together with the signed contract, your payment will be forwarded to the developer or the vendor. The signed contract will set out when further payments are due, and will also include a fixed completion date.
What happens at completion?
When you are buying a resale property, completion normally takes place within 6 weeks of signing contracts. This gives buyers enough time to arrange a mortgage and organise finances, furniture etc. When buying an off-plan property, there may sometimes be interim payments due prior to completion, or simply the remainder of the funds payable at completion (this will depend upon the payment terms in the contract).
Before arranging the completion of your property, your lawyer will check that the description of the property matches the one provided in the contract as described by the vendor or developer and that a licence of the first occupancy has been granted (in the case of off-plan properties). Once the lawyer is happy with the property, he/she will ask you to send the funds due at that point and will liaise with your lender regarding any mortgage that you wish to take out on the property.
Once the funds have been received by the lawyer, you will sign the title deeds, either in person, or by power of attorney with your lawyer in Spain, and the property is then legally yours.
In addition, to become the owner of a property in Spain, you will need an NIE number or certificate. These are issued by the local police station, and your lawyer will normally be able to arrange this on your behalf, although he/she will probably require a power of attorney unless you want to attend the police station in person to obtain this.
What are the costs of buying a property in Spain?
Normally, if you allow for a figure of around 11% – 13% of the purchase price, this will cover the costs of purchasing a property in Spain. This figure comprises legal fees which normally account for 1%, transfer tax on resale properties of 8% (9% for amounts between €400k and €700k, and 10% for amounts over €700k), plus notary fees & and registry fees.
In the case of new developments and off-plan purchases, there is no transfer tax to pay, but you will instead need to pay 10% IVA (similar to VAT) and Stamp Duty, therefore raising the total purchase costs to around 13% – 15% of the price.
If buying with a Spanish mortgage, there will also be fees associated with the mortgage, such as notary fees and arrangement fees.
POST-COMPLETION
There are several things that can only be arranged once you become the legal owner of your property in Spain.
How do I organise utility contracts?
Once you have signed the title deeds, you will be able to apply for utility contracts such as water and electricity, and set up direct debits to ensure these bills are paid. This is something that your lawyer in Spain can organise on your behalf.
How do I set up a bank account?
Your lawyer will also be able to help you in setting up your bank account and arranging home insurance for your property in Spain. This is a simple process.
How do I arrange the furnishing of my property in Spain?
Furnishing your property can often seem like a chore, but many buyers simply instruct a home furnishings company to do the job for them a few months or weeks prior to completion. Obviously, this will depend on the reasons for the purchase.
If you are buying the property purely as an investment, you may prefer to take a hands-off approach to furnish the property. However, most buyers enlist the help of a furniture specialist and also shop around for some items themselves. We can recommend several furniture specialists that can cater for all tastes and budgets.
SPANISH LAWYERS
When buying a Spanish property, it is vital that you use a qualified lawyer in Spain. The legal system in Spain is different to that of any other European country, and its complexities can sometimes baffle buyers who try to ‘do it themselves.
What are the costs?
Lawyers in Spain generally charge 1% (plus iva) of the property price for their services. This may appear expensive, but it’s best to treat this as an important investment to safeguard your funds and to provide peace of mind.
Who should I choose?
Your lawyer should speak your native language but be based in Spain. He/she may be recommended to you by your agent, or you may have been referred to your lawyer via friends or colleagues who have bought a Spanish property in the past. The lawyer should be independent, not working for the vendor or developers.
What does the lawyer do?
Please consult the information in ‘The Buying Process’ part at the beginning of this guide
Do I need to be in Spain to sign the Contract or Title Deeds?
When buying a Spanish property, you can arrange a Power of Attorney with your lawyer in Spain. This document is signed by you and gives your lawyer power to act on your behalf in relation to the purchase of your property, meaning that he/she can sign documents without you needing to be in attendance. Many of our clients based outside of Spain find this to be the simplest way of handling the transaction.
What else can my lawyer in Spain do for me?
Lawyers in Spain are accustomed to people from all over the world buying property in their country, so they understand how difficult the process can at first appear.
Your lawyer can assist with making wills, opening bank accounts, arranging utility contracts and direct debits, arranging property insurance and liaising with developers regarding ‘snagging’ issues. Your lawyer may also be able to provide useful introductions to Spanish mortgage providers and lenders.
CURRENCY EXCHANGE
This section is relevant for those buyers from outside the euro-zone seeking to purchase property in Spain.
Should I use a specialist firm to convert my currency?
The slightest changes in the currency rates can affect the cost of your property in Spain. For a Spanish property priced at 200,000 euros, a difference in the exchange rate of just 1 cent could cost or save you over 1,000 euros on the transaction. That 1,000 euros is surely better being in your pocket.
Banks and currency exchange specialists all buy and sell currency in bulk, and so are able to offer much better rates than the day-to-day tourist rates. While banks engage in other business, exchange companies specialise in one area and can often beat the bank quotes. The slightest changes in the currency rates can affect the cost of your property in Spain.
For a Spanish property priced at 200,000 euros, a difference in the exchange rate of just 1 cent could cost or save you over 1,000 euros on the transaction. That 1,000 euros is surely better being in your pocket!
Banks and currency exchange specialists all buy and sell currency in bulk, and so are able to offer much better rates than the day-to-day tourist rates. While banks engage in other business, exchange companies specialise in one area and can often beat the bank quotes.
How do I actually transfer my money?
Once you have decided to use a foreign exchange company, you will need to sign and complete their standard compliance forms, and then simply inform them of the amount you need to transfer and provide the details of the destination account in Spain. They will then tell you the rate that they could achieve, and if you are happy with that, they will ask you to transfer the funds to their own holding account. The funds will be transferred at the rate agreed and the euros will be on their way to Spain
Can I guarantee an exchange rate?
There are various ways of determining and fixing a rate for future transfers. This is very useful if you feel that the currency market may dip, particularly if you are making staged payments to a developer to buy a property in Spain. We would advise you to discuss this with your currency broker.
SPANISH MORTGAGES
How much can I borrow in Spain?
Spanish mortgages are normally available (subject to status) for non-residents up to 70% of valuation of the property, though the vast majority of lenders prefer to work on the basis of 70% of the actual selling price (if it is lower than the valuation price). Indeed, some banks have recently withdrawn lending at 70% and prefer to offer maximum mortgages of 60% of the purchase price, particularly if dealing with purchases in excess of €1m.
What mortgage interest rates are available?
Spanish mortgage rates vary depending on the type of product and are based upon the EURIBOR rate – check with our mortgage experts for the exact figure, as this changes regularly.
What mortgage products are available in Spain?
The mortgage market in Spain isn’t as sophisticated as in other countries. The vast majority of Spanish mortgages are simple capital and interest repayment mortgages. Since the credit crunch, there are fewer mortgage products available, so don´t expect interest- only, fixed rate or self-cert mortgage deals in Spain.
What paperwork do I need to produce to apply for a mortgage in Spain?
Generally, the banks in Spain will require at least 3 months wageslips, P60 and 3 months bank statements. If self-employed, you will need to produce a set of your last 2 years´ accounts. Banks in Spain will also require a credit check of all applicants.
What do the banks charge for arrangement fees?
All banks have arrangement fees, and these vary from lender to lender, and can be negotiable on occasion.
FINANCE & MORTGAGES SUMMARY
Current Situation
Thankfully, the Spanish mortgage market has eased since the credit crunch whish began in 2008, and most banks now have lending targets that they try to meet in each branch.
However, whereas in the past the paperwork would often be overlooked, now buyers need to produce all the necessary documents such as payslips or company accounts, P60, bank statements, details of existing liabilities, and a credit check.
Most Spanish banks are able to lend up to 60% – 70% of the valuation of a property to non- residents. They will be reluctant to go any higher than 70% because they simply don´t want to over-expose themselves to the potential for further losses. If the valuation comes back to the bank as being higher than the purchase price, then the latter figure will be the one that the bank will use to base their lending.
Interest-only Mortgages
For those buyers seeking an interest-only mortgage in Spain, these are now hard to find. Most bank personnel along the costas simply don´t understand the notion of only paying the interest on a mortgage. Occasionally, they may offer a limited period of a ´carencia´ (which amounts to the same thing), but normally they will need a very good reason to do so, and usually this type of product would only be made available to residents. The banks flirted with interest-only products before the credit crunch kicked in, but overseas buyers will need to accept that their Spanish mortgage will be a very straight-forward capital and interest repayment product.
Mortgage Term
Mortgages in Spain are normally available for up to 30 years with the maximum age for an applicant at completion of the mortgage term being 70.
Interest Rates
Interest rates have been historically low here in Spain for some time, and most mortgage products will attract an interest rate of between 1% and 1.5% above the 12 month Euribor.
Fees & Taxes
Set-up fees and taxes for Spanish mortgages can be fairly hefty, and can add an additional 2%-3% of the purchase price of the property to the overall costs.
Buying Spanish Property
