Just like any advanced economy Spain has a developed mortgage market with a number of lenders offering a great variety of Spanish mortgages.
In Spain, mortgages are offered by national banks and savings banks (known as cajas) and sold either directly by the lenders or through mortgage brokers. Several international banks, including British banks like Barclays, Halifax and Lloyds TSB, offer mortgages in Spain alongside the national banks and cajas.
Just like any other developed mortgage market there are big differences in the costs and terms of the Spanish mortgages on offer, ranging from inflexible and expensive mortgages to cheaper and flexible ones. Although the interest charged on all Spanish mortgages is calculated as a function of the base rate set by the European Central Bank, beyond that mortgage lenders in Spain are relatively free to set the charges and terms of the mortgages they offer. This translates into significant differences between Spanish mortgages in terms of their costs and conditions.
Not only can Spanish mortgages vary in their attractiveness from bank to bank, they can also vary considerably within the same bank, and even from branch to branch.
It is often advisable to consult with a reputable mortgage broker before deciding on your choice of bank or mortgage product. Mortgage brokers have access to a wide range of lenders and products and are able to advise which is the most suitable for your circumstances. Brokers will often charge a fee for their services.
As in other countries such as the United Kingdom the vast majority of mortgages sold in Spain (to both Spaniards and Foreigners) are variable rate mortgages. This means that mortgage repayments vary according to the base rate set by the European Central Bank. This means if the interest rate falls they will pay less, but if it rises they will pay more.
Most lenders also offer a fixed rate Spanish mortgages. These Spanish mortgages tend to have higher interest payments in the short term but if interest rates rise a fixedrate Spanish mortgages holder might end up paying less than would be the case with a variable-rate Spanish mortgage.
Some Spanish mortgages lenders also offer a mixed mortgage that involves a certain period (for instance 5 years) of fixed interest payments, and a floating rate thereafter.
Most Spanish mortgage lenders now offer an interest only mortgage under which borrowers pay only the interest on their loan, and then return the capital either at the end of the mortgage or at some point in the future during the lifetime of the mortgage. This kind of Spanish mortgage can be very attractive for foreign investors who plan to rent out their Spanish property to cover the mortgage costs.
Recently Spanish lenders have increased the term of mortgages. Where as in the past most Spanish mortgages were for between 10 and 20 years now many lenders offer mortgages of up to 30 years or even longer (depending upon the age of the borrower).
Spanish mortgage lenders will decide how much to lend you and on what terms according to your personal and financial profile. They will want to know how much you earn and what your other financial commitments are (your personal balance sheet - assets and liabilities). As a general rule of thumb they will lend according to earnings multiples whereby your Spanish mortgage repayments will not exceed 35% of your net annual income.
In general Spanish mortgage lenders don't like to lend more than 70% of the value of the property to foreign buyers of Spanish property. Nevertheless this is starting to change as Spanish mortgage lenders realise how important foreign buyers of Spanish property are and how big the market is.
In the meantime a good Spanish mortgage broker may be able to get foreign buyers a Spanish mortgage with a loanto-value of up to 80% (depending upon the circumstances of the applicant). A good Spanish mortgage broker also removes the language problem as they interface between borrower and lender and provide both sides with all the information they need in their respective languages
Below is a list of terms you will come across on a day to day basis.
Abogado - Solicitor / Lawyer
Agencia de Inmobiliaria - Estate Agent
Disposición de fondos - Provisión of Funds
Escritura de Compraventa - Property Purchase Deed
Escritura de Hipoteca - Mortgage Deed
Euribor - The European Inter Bank Offered Rate
Gastos - Costs
IVA - VAT
Impuestos - Taxes
Loan to Value (LTV)% - This is the percentage of the loan compared with the value of the property.
NIE number - A registration document to enable a person to purchase anything in Spain i.e. a house, car, obtain finance
Notario - Notary
Nota Simple - Land Registry report
Offerta Vinculante - Binding Offer
Registro de la Propiedad - Land Registry
Tasacion - Valuation