For many years at both Valencia Property and The Spanish Property Network we have not been doing Spanish Property Mortgages for clients as, simply put, there were none available really at decent rates and the number of hoops you had to jump through to get one meant that in the end the effort was not really worth it.
Finally, this has changed now as Spanish Property Mortgages are back.
Why is this?
Well there are a couple of reasons. Firstly the European Central Bank has started a process of quantitative easing (Buying bonds and effectively printing money) as the UK and USA have been doing for years. They have effectively given the banks free money but on the condition they actually lend it out this time rather than hoarding it to clean their books like they did with the first tranche of bailout money.
Over the last couple of months we have started looking into mortgages for clients and we are finding that, although not everyone is qualifying, the terms and conditions of mortgages are getting better by the month. Also certain banks, the less traditional ones, are coming up with interesting ways of making their mortgages more competitive. Let’s take a look.
The most cavalier attitude by banks is on their own properties of course. As reported in the Telegraph this week Banco Popular in Spain is offering a 113% mortgage on some of their own properties in the holiday areas of the coast. Effectively you put no deposit down and all of the costs taken care of. The first year the rate is Euribor (Currently 0.205%) plus a differential of 0.9%. It rises to plus 2.39% in year two and after that. However this offer is limited of course to their own properties that they want to get rid of. There is a catch of course, you are probably paying a price on the property that is high compared with comparable properties on the coast. This is not always the case but usually we can find properties that compare very favourably with what the bank is offering. However they will not offer you such attractive terms on property they do not own themselves.
The norm on Spanish property mortgages at the moment is a maximum of 70% of cost price with a differential over Euribor of 2%. This differential is variable according to other products that are contracted from the bank and it is here where newer banks are stepping in to make innovations.
Triodos Bank have started to offer a mortgage where the differential to Euribor varies according to the Energy Performance Certificate. There is only a small difference, a certificate with an A rating would mean Euribor plus 1.35% as the mortgage rate whereas a G would give Euribor plus 1.56%. You can see the chart taken from Idealista below
Obviously the difference in the monthly payments is therefore not huge but obviously a more efficient home also costs less to heat or cool so there are certain advantages of having a low EPC rating. There are a couple of other advantages too. Triodos have eliminated the opening commission and also commissions on partial or full early repayments which could save you a lot of money over time.
Kutxabank has recently started offering the lowest rates of any bank on their mortgages but careful of the small print. They are offerring Euribor plus 1% but in order to benefit from that rate you must also have the following.
- Net income of at least 3000 Euros per month going into the bank
- Get credit cards and use them to spend at least 4800 Euros per year
- Contract life, home or car insurance through the bank (Any one of the three)
- Contract a pension plan and put in at least 2000 Euros per year into it.
If you contracted your insurance on the open market you would save money, their pension plan is not the best on the market of course and you could do better investing the money in another way and obviously you need to be careful with credit cards so as not to pay the silly money that interest rates will be on them. Therefore despite the headline of “Cheapest Mortgage in Spain” I would tread warily on this and actually prefer paying the higher rate on the mortgage rather than doing everything to get it down to 1% by fulfilling the conditions.
Bankinter have also entered the battle for new mortgages with a mortgage with a headline rate differential of 1.5% for incomes of over 2000 Euros per month. The major advantage of the Bankinter mortgage is that it includes a clause accepting returning the house to the bank as full payment of the debt, the so called “Dación en Pago”. This is huge in Spain as it implicitly accepts that the bank take on some of the risk of prices falling further. For a bank to do this they must also consider that we are at or near the bottom of the market as they view it. However again there are catches. You must contract a life insurance and home insurance through the bank, your payments must go into the bank of course and you have to direct debit at least three bills through the bank too (Electric, water and gas are the most popular). On the plus side there is no opening commission and no collar on the mortgage meaning you benefit when Euribor is low as it currently is.
Most mortgages in Spain, over 90%, are at a variable rate that is adjusted every year. Nevertheless there are fixed rate mortgages available at some financial institutions and these can make your planning much easier despite you paying a higher price for them. Currently there are at least three banks offering a fixed rate mortgage, Banco Sabadell, Kutxabank and UCI (From the Santander Group) and their rates vary between 3.25% and 3.75%. At the moment these rates seem high (Over 3% above Euribor) however historically Euribor’s average over the 15 years of its existence has been 2.64% with a high of 5.39%. The variation from today’s 0.205% to 5.39% makes a huge difference in payments of course whereas if you knew you had to pay 3.5% then every year your payments would remain the same. Bear in mind one thing though, Euribor rates are expected to continue being very low for quite a long time if Mario Draghi head of the Central European Bank is to be believed. Therefore a variable rate might not bite you on the backside for a long time yet.
There are more offers and considerations of course but this is just a quick overview. Let’s look at a couple of other aspects of having a Spanish mortgage though.
If you are a foreign buyer of Spanish property then you are also in good shape with a Spanish mortgage at the moment as the Pound, Dollar and other currencies are very strong against the Euro. Therefore your monthly payments may look very attractive at the moment. Bear in mind though that if your currency falls against the Euro then your monthly payments rise. If you earn in another currency make sure that you give yourself at least a 20% margin where you would not be inconvenienced if your currency fell against the Euro or hedge your payments by forward ordering the money to cover the payments from our currency partners. This means you can guarantee payments in advance (And if you can make a transfer for the payments for a whole year you can easily plan in advance)
You may also want to take away the pain of actually having to find your own mortgage or not rely on the recommendations of your particular agent. We recommend scouring the market for the best deal for you and our mortgage partner can do that for you all over Spain. Contact Katherine at Mortgage Direct to discuss your options. Believe me it is worth it to take away the pain of finding your own mortgage.
Finally, consider also a mortgage in your own country on Spanish property. It may well be that in your particular case you can get a better deal in your home country than in Spain. However, for most people now the better deal will be in Spain as the mortgage market opens out with the new money being pumped into the system.
If you are looking to buy property in Spain with a Spanish Mortgage then contact us to get an initial consultation and idea of whether what you are looking for is feasible to begin with. Equally if it is one of our properties (And let’s face it why not? ;-)) then we can help you out the full way from initial contact to mortgage, purchase and beyond. We are only too happy to help.
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