Good prices, favourable exchange rates and easy conditions are very attractive to international clients for buying properties in Spain. Alberto Goldar, Director of Financial North, shares with us his overview of the current mortgage rates and conditions for local and overseas buyers in Spain.
What are the current conditions and mortgage rents in Spain? Is there any difference between both local and foreigners buyers?
The conditions for buying property in Spain remain very attractive to clients with continued low interest rates and in many cases favorable exchange rates.
Spanish lenders offer a higher percentage of finance (Loan to Value) for those mortgage applicants that fill in their tax returns in Spain.
We offer a wide range of mortgage solutions for non-resident and resident investors with flexible, competitive terms, pricing and repayment options.
For some customers the best option is to establish a private banking relationship in the course of the purchase of a high value property in Spain, mainly if they:
- have a situation that is too complex for Spanish retail banks
- does not want to engage in the detailed documentation process for getting a Spanish retail loan
- Has an existing portfolio of cash or financial assets without any loans against them.
In addition, a benefit of working with private bank is the interest rate on private banking loans are generally lower than those found with Spanish banks.
The essentials of a private banking relationship are that the client brings a significant amount of financial assets to the bank such a cash, bond or equities portfolio. The private banker will then agree a strategy to manage this portfolio to generate a return to match the customer’s appetite for risk.
Once a wider relationship is established with the bank, lending on property can be discussed.
We have relationships in place with international private banks based mainly in London and Luxembourg.
In the case of a foreign buyer, what do they need to know when applying for a mortgage in a Spanish or international bank?
You need to factor in that the mortgage application process when you agree a completion dateline on a contract.
Depending on several factors, the average time to get a mortgage approved ready for completion would be 5 weeks, but it is always wise to include a caveat in your contract related to the mortgage approval.
At Financial North we aim to reduce the paperwork whenever it is possible and to mitigate the language burden, so you can enjoy peace of mind from a clear and transparent application process.
What are the current conditions compared to the last 4 years?
The average spread above the Euribor has reduced from 3% to 1.75% in the last 3 or 4 years.
A 10 years fixed interest rate starts at 2.5% in some countries, depending on the personal financial circumstances of the mortgage applicant. The opportunity to lock in rates at such low levels for such long periods remains extremely attractive for foreign investors.
In this situation, do you advise to take out a mortgage instead of paying it all at once?
Most of our customers could pay the purchase of their property in Spain with cash, but due to low interest rates, most of them prefer to leverage their investment, as they can obtain higher returns for their capital in other investments.
How do you see the current Spanish housing market? What changes do you foresee in the near future?
There is high demand for prime locations in Madrid and Barcelona, so property prices are likely to go up in the next years.
Why do you think Madrid and Barcelona are the cities with the most investment in real estate?
In our opinion, several factors favor these two cities. Among others:
There is an increase perception that investment alternatives such as London are likely to be in a property bubble and they have recently increased taxes related to the property.
Property prices in Spain remain at attractive levels and they are still below the pre-crisis level of 2007.
American investors use these two cities as a hub for their business in Europe but also it has attracted many investors from countries in Africa and America, where they have significant instability, either financially or politically.
What factors do you think attract the most to foreign investment in Spain?
The main reason will be quality of life, attractive prices compared to other cities and that it is a 2 – 3 hour flight from most large cities in Europe.
Finally, do you believe that the current situation of uncertainty in Catalonia may discourage foreign investment?
Investors, like in any other country, they seek for a stable legal and tax framework.
The political situation in Spain and Catalonia has raised some concerns as the new major in Barcelona has also done so.
In the first case, in the event of an independence of Catalonia from Spain, it is likely they shall keep the same or very similar legal and tax framework. There is no evidence that this will be different.
For the later one, the new major is trying to implement new laws to increase the protection levels offered to vulnerable families and it mainly affects those properties located in low-income neighborhoods.
Investors that acquire a property as main or second residence generate business to the local community and therefore they are likely to be encouraged by any government.
For those customers that are investing on a property with the purpose to rent it out, they must comply with local regulation and taxes.
In all cases, we strongly suggest to all our customers to seek legal advice.