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November 20th, 2006
Buying property in Spain can still be daunting but the process can be made easier if advisers learn about the country and the systems in place.
Spain remains the most popular destination for British people buying property overseas and British expatriates are now an important part of the Spanish property market, particularly within the popular Costa del Sol and Costa Blanca regions.
According to the Office of National Statistics’ Official Social Trends Report, over a quarter of Britons, 27%, are buying their second homes in Spain and the Spanish Ministry of Tourism has forecast that one million foreigners will set up home on the Spanish coast within the next six years, trebling by 2025.
The demand from British people for property in Spain has been fuelled by the demand for low-rate Euro mortgages and the boom in low-cost, budget airlines. Research global travel information platform OAG Worldwide has shown that the number of low-cost flights to and from Spain is up 25% on last year, while low-cost operators within Spain have increased by 160%. Euromonitor’s Travel and tourism in Spain report also revealed that one to three day breaks are the fastest growing type of holiday in Spain, accounting for 37% of all trips in 2004.
The growth in low-cost, budget airlines has not only opened up the sun, sea, and sand in Spain to the independent traveller, but has also driven the development of new, regional airports. With daily flights leaving to Spain, particularly to the Costa Blanca, Costa Calida and Costa del Sol, from numerous airports across the UK, the British can now benefit from shorter, more frequent, affordable trips.
As a result, lenders will continue to see a greater number of requests for mortgages in Spain, which will ultimately put more business into the hands of intermediaries and create stronger networks of intermediaries looking to do business abroad. To provide clients with the excellent service standards they expect in the UK, intermediaries need both an understanding of the Spanish market and importantly access to a bank with experience of dealing with British non-resident customers.
Buying a property abroad is not as complicated as some clients may imagine. Just like buying in the UK, brokers’ clients need to follow the proper process. Therefore mortgage packagers or intermediaries must have a detailed understanding of the Spanish market or local area, so that they can provide clients with the correct level of advice to follow the house buying process correctly, or have a good resource of knowledge to call on.
A report in 2005 by the Spanish savings bank Caixa Catalunya entitled Demography and housing in Spain and its Autonomous Regions examined the expected level of supply and demand for residential property in Spain over a 10-year period between 2001 and 2011. The report – prepared for Caixa Catalunya by Professor Josep Oliver – finds that while demand for new residential property in Spain over this period will reach an estimated 400,000 units per year, the number of new housing starts in 2004 was almost 700,000 units.
The report breaks down the expected annual demand for 400,000 new Spanish properties as follows: 230,000 main residencies caused by demographic developments, 100,000 holiday homes bought by Spaniards and 70,000 second homes bought by foreigners investing in Spain. Over the 10-year period, the report forecasts that 2.3 million new households will be created in Spain, driving the demand for an average of 230,000 new main residencies each year. Half a million of these new households will be made up of economic migrants and the remainder the result of changing social trends among Spaniards such as smaller families and an increasing divorce rate.
But as long as Spain remains popular and its house prices stable, there will be increased opportunities for people to own property in Spain. While there will always be a range of options for financing that dream home in the sun, the relatively low levels of interest rates in Spain has continued to drive interest in buying property in Spain and has resulted in an increasing number of people opting for Euro mortgages.
Interest rates in Spain have generally been below those quoted in the UK for quite some time. However, an important consideration surrounding Euro mortgages is that the lender will require monthly repayments in that currency. Therefore, fluctuations in the exchange rate will certainly affect the value of client’s monthly repayments, if they are being met from income earned outside of the Euro zone.
In addition, most banks in Spain will offer a maximum loan to value of around 70%. The large 30% deposit reflects the fact that the property is not the customer’s main residency. In situations where someone holds Spanish residency papers, the maximum loan will usually be restricted to 80%, although in some cases can be as high as 95%. Certain banks also allow their customers to ‘wire’ amounts for the property purchase free of the normal telegraphic transfer fees.
The main difficulty most prospective buyers and their advisers experience in the house buying process is, inevitably, language and the use of different jargon, such as evaluators rather than surveyors. However, as long as care is taken over the choice of bank in Spain and some initial enquiries are carried out to check its ability to deal with British customers in English, all these differences can be overcome.
Most Britons buying property in Spain demand similar products and services to those available in the UK. For this reason, the British banks that combine a network of branches in Spain with a customer service team in the UK are best placed to provide the product range and standards of service expected by British customers.
Dealing with a UK based operations team also enables intermediaries to avoid international telephone charges and allows all paperwork to be handled in the UK. The team can also provide advice about applications submitted, mortgage packers, lending criteria and can work with the intermediary to ensure that it has the relevant knowledge, skills and expertise to operate efficiently within the Spanish market and that applications are processed smoothly and operate on a right first time approach. This means that applications are only passed for processing when all the supporting papers are available, therefore avoiding time consuming corrections or amendments having to be made. In addition, English-speaking mortgage helpline numbers help to deal with any time sensitive queries that intermediaries may have.
The importance of using a qualified solicitor with local knowledge and experience of acting for British customers cannot be over emphasised when clients are buying property in Spain. Few people would consider buying a property in the UK without using an independent solicitor and surveyor, so why should it be any different for brokers’ clients buying property in Spain?
Although employing an independent solicitor and surveyor increases the purchase costs, as legal and survey fees have to be paid, these amounts are relatively small when compared to the expense of trying to sort out unexpected difficulties in the future. In addition, if the bank in Spain has an approved panel of solicitors and surveyors an intermediary would be able to pass on competitive prices to their mutual client.
As in the UK, a Spanish solicitor will ensure that all aspects of the purchase, including planning permission, obtaining a residency certificate and other legal requirements are satisfactory. In addition, valuation reports and reports from the Land registry or Property Registry with details of charges, laws, rules and regulations that could impair any future use of the property can also be provided in English by the solicitors. Advice about tax, if required, can also be provided.
Brokers should finally offer the following checklist to their clients considering buying a property abroad so they can make the necessary personal arrangements before leaving the UK.
Knowledge of the market and taking extra care of their client making the big step to buying property abroad will ensure that the process is smooth, successful and fulfilling.
One million foreigners will set up home on the Spanish coast within the next six years – three million by 2025.
70,000 foreigners are demanding second homes in Spain annually, 17.5% of total demand.
Spanish banks will usually offer a maximum LTV of 70% and require a 30% deposit.
Story from mortgagesolutions-online.com
