The Latest Spanish Property News from Kyero.com

With more and more Britons looking to buy a property overseas as an investment, flying to let has reached mainstream appeal. Not content with only using a second property as a holiday home twice a year, property buyers are looking to see returns on their investments both through capital gain and rental yield. But with new markets opening up every week, how can you ensure that you are buying a successful fly to let property? In the first of the second series of Overseas Property Podcasts, Nubricks.com asks two industry experts, Matt Havercroft, editor of A Place in the Sun magazine and Peter Conradi, author of the Fly to Let Guide and editor of the Sunday Times property section for their advice.

The fly to let phenomena was born from the concept of buying property to let in the UK. Many people found that additional income could be generated by owning and renting out second properties in the UK however as house prices have risen, buyers keen to tap into this market have been forced to look elsewhere – more often than not, overseas. This combined with the rapid increase in the number of routes covered by budget airlines made buying and renting out a second property outside the UK feasible.

One of the most important factors to consider before purchasing your property is who your target rental market will be. Are you looking to let your property out short term to holiday makers or to the business, expatriate or local population long term? You must consider if you want to use the property yourself at any time during the year or are you happy to have it simply as an investment. As Matt Havercroft says, “It’s also essential to have a marketing budget and plan in place and to factor these into your initial budget.”

Purchasing a property in a location served by a budget airline is a sensible choice, as Matt comments, “I think budget routes are clearly an important consideration when buying to let abroad, especially if the target market is a British holidaymaker” however there have been instances where routes have been cancelled by a budget airline so it is important to have a back up such as ferry, rail or road access.

If you are looking for rental income then be realistic about the yield you can expect; be cautious and research thoroughly the rental market in your chosen location. Often people think that the rental income will cover the cost of the mortgage but this is unrealistic in most cases. As Peter Conradi says, “It does all come down to research and understanding exactly what your potential renters will want and having realistic expectations about the kind of returns that you can make.”

Given that most letting agent’s management commissions range from 15-25% of your rental income to take care of your property abroad, in addition to this sizeable proportion of your property income, it is also essential to calculate in hidden costs such as local taxes, maintenance fees and community charges. As Peter comments, “Holiday lets also have their own extras charges such as having someone to meet and greet the tenant, do the laundry and cleaning etc” so this all needs to be factored into the return you expect. Think about how best to furnish your property, weighing up the wear and tear implications of long term verses short term lets in advance can be offset against future profitability.

If you are looking to rent your property out to holiday makers then don’t just consider the short haul market. Long haul destinations such as Thailand are attractive as they offer a long rental season with year round good climates, cheap property prices and increasingly affordable flights. “Many of these places have very healthy rental markets and so could be worth comparing with short haul destinations if you are just focussed on the pure rental return” comments Peter. Other places to consider are Egypt and Morocco or even ski resorts which can offer golf or outdoor activities in summer.

If you are buying a property as a long term investment then consider the future of flying to let. There has been increased discussion on the impact of frequent flying on the environment and the introduction of green air taxes however how much this will affect Britons holidaying overseas is yet to be seen. It can be fair to say that European countries such as France, Italy and Spain which can easily be accessed from Britain by rail or ferry will remain attractive.

So before you take the plunge and purchase a fly to let property overseas carefully consider your requirements and understand the local market. Buying property to let overseas can be successful but as Matt says, “planning and research is key”. For more top tips from Matt Havercroft and Peter Conradi download their podcast at nubricks.com/archives/272/fly-to-let-guide-overseas-property-podcast/ or visit nubricks.com for more information.

Story from nubricks.com

Europa Mortgages, an independent broker, based in Malaga, Spain, is now working with an expanded panel of lenders, now offering a range of interest only mortgages in Spain

Several years of rising property prices in Spain, combined with recent rises in the Euribor rate, has made obtaining a mortgage in Spain more problematic for overseas buyers, than in recent years.

Europamortgages.com, an independent mortgage broking firm, based in Malaga, has expanded their panel of lenders in order to offer their customers the widest choice of available Spanish Mortgages.

Managing Director, Chris Norman, explains that “we have been working with and expanding our panel of lenders, to be in position to successfully place the vast majority of mortgage applications that we receive, with the best available rates and value. Due to the volume of business that we are generating for the banks, we are able to obtain better than published deals for our clients”.

Europa Mortgages are also maintaining their strict “no fee” policy for their clients. The majority of brokers in Spain levy some kind of direct broking or admin fee on their clients, in addition to any bank opening fee. Chris Norman commented that “we made the decision not to charge an additional fee because we don’t see why the client should effectively pay us twice. Our clients pay only the standard bank opening fees”.

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The European Estate Agents Union is warning homebuyers in Spain to double check their property has planning permission before they buy a new home.

It follows an investigation by the EEAU into several companies working in the Albox region of Spain and the expulsion of one company from the organisation.

The EEAU is concerned Brits looking to buy abroad aren’t aware of the issues that could turn their dream property into a nightmare.

They’ve been contacted by a number of concerned homebuyers who have bought properties in areas like Almeria and Almanzora only to find out their home doesn’t have planning permission.

Hundreds of homes have been built on agricultural land and don’t have a licence of first occupancy. Some homes have had to be knocked down

Andy Marchant, co-founder of the EEAU, says: “When people buy homes abroad they often think it’s the same as buying property in the UK. Spanish property law is complex and you need a good independent solicitor working for you.”

“Many people look at spending hundreds of thousands of pounds in Spain on a dream home yet don’t employ an independent lawyer. By doing a little research and finding a good lawyer, you can make the homebuying process easier and ensure your villa abroad becomes a cherished home.”

“There are warning signs. Look out for properties which don’t have tarmac roads, those which aren’t connected to utility mains or properties that seem a great deal cheaper than others in the area. You can also contact the EEAU for help and advice if you’re unsure about a property development.”

Story from easier.com

The latest Quarterly Savings Survey from National Savings & Investment indicates that one in four UK first time buyers would buy overseas to save up for a house in the UK.

The Quarterly Savings Survey asked more than 1,000 people who do not own or are not currently buying their own home if they would consider moving abroad where the cost of living might be cheaper in order to save to get on the property ladder back in Britain. Results indicated that Spain (43%), Australia or New Zealand (33%), the USA (22%), and Eastern Europe (20%) were the top choices for those who would consider moving abroad.

This option is definitely more popular with younger people. Whilst, overall, 25% would move abroad, this proportion rose to 36% in the 25 to 34 age bracket and 32% of 35-44s said they would emigrate for a cheaper life.

“British people clearly have a great appetite for buying a property in this country but find it difficult to save for a deposit while living here,” said Dax Harkins, senior savings strategist at NS& I. “It seems many will go to extreme lengths to achieve their goal, even if it means moving to the other side of the world in order to save up for a deposit back home.”

NS&I’s winter 2006-07 Quarterly Savings Survey, which has been running since spring 2004, examines trends in savings behaviour across Britain.

Story from OPP(subscription required)

Bank charges and taking risks on the exchange rate could be robbing more than one million pensioners abroad of around £300 million a year when they claim their state pensions.

Every month, the average expat pensioner is charged between £10 and £30 for simply collecting their pension through their bank, and a number of overseas banks add a receiving charge of 0.5 per cent on top of that, according to research from HiFX, which provides currency exchange services.

This means that in all, the average expat pensioner is paying as much as £300 a year just to collect their state pension. That in itself is a shocking figure, but given that the basic state pension is currently worth just £4,381 a year - less than a fifth of the average national wage - it amounts to a nearly seven per cent reduction on the payment you can claim, and that is before tax.

Over 100,000 Britons leave the UK each year, according to the Institute for Public Policy Research, with over 5.5 million already living abroad - a fifth of them pensioners. Many, I have no doubt, find they can make their money stretch that bit further in sunnier climes.

But, of course, not only do you have to take the cost of the transaction itself into consideration, there is also the thorny question of exchange rate fluctuation. You might expect HiFX to point this out - it is what it does after all - but even so, it is not wrong.

If you happen to be taking your pension when the currency is working in your favour, then great, you automatically generate income for yourself and you can treat yourself to something a bit special. If you happen to be a loser in the equation though, it can be painful - and your standard of living will suffer.

You can fix your currency exchange rates with some foreign exchanges, but you may also be able to alleviate some of the charges you face from the banks by looking at other ways of cashing your pension. Alternatively, given the current climate and rising tide of resentment against bank charges, you could try to challenge your bank to reduce the charges you pay.

Sterling is currently strong, said HiFX, so picking a good exchange rate now could mean that you benefit for the longer term by locking in.

Of course, there is nothing you can do to change the amount of pension you get if you live in one of the Commonwealth countries where pension freezing is an issue, but at the very least you can reduce the amount you are throwing away in charges.

Full Story from telegraph.co.uk

Currency specialists believe the latest interest rate hike by the European Central Bank to 3.75% will negatively impact homebuyers with overseas mortgages.

Amid fears of inflation Eurozone rates have risen to a five-and-a-half year high, from 3.5%. Nick Bull, marketing manager of Moneycorp, told OPP the move was widely expected by the markets, saying: “While European interest rates remain lower than in the UK, the cost of servicing a Euro mortgage from the UK (or paying cash for a property) has increased significantly. On this side of the Channel, many believe that UK interest rates are at or near their peak and therefore Sterling has suffered, losing almost 4% of its value from over 1.52 Euros to the Pound to 1.46.”

Mark O’Sullivan, head of trading at Currencies Direct, said: “It’s likely that over the next few months we will see property prices in Europe continue to rise overall but at a much slower rate than previously. There will be some areas though where we may see a decline in prices as the ECB’s rate increases hit the pockets of buyers.”

Global Insight’s chief UK and European economist Howard Archer told the BBC: “The ECB is clearly retaining a tightening bias in its monetary policy stance following the rate hike.”

The ECB’s decision came shortly after the Bank of England announced it was keeping UK interest rates on hold at 5.25%. Some analysts believe Europe’s key interest rate could hit 4% before the end of the year.

Story from OPP(subscription required)

An estimated 3,000 estate agents in Malaga will go out of business this year, according to Spain’s Professional Real Estate Agents Association.

Óscar Martínez, president of the trade body, told the Opinion de Málaga newspaper that there are now more than 10,600 real estate agents across the province. However, higher prices and rising interest rates have slowed the market and it is taking much longer to sell (up to nine months).

Mark Stucklin, head of property information website spanishpropertyinsight.com, said: “Many people set up as estate agents, often without any relevant know how or training. Another industry expert has estimated that as many as half of all real estate agencies will close during the coming slowdown.

“The market in key parts of Málaga Province, for instance popular tourist areas on the coast (but not necessarily in Malaga city) appears to be very quiet. However, it is my impression that buyers are still active when attractive property is reasonably priced, so I wouldn’t say the market in popular areas is in freefall. When vendors drop prices by 20-30%, attractive properties sell quickly, so there appears to be a solid price floor. But there are also some pockets of unattractive over-development of mediocre properties in poor locations where prices may have to fall more than that to get anyone interested.”

Chris Mann, director of communications for Murcia-based golf developer Hacienda del Alamo, said agents would gain more from Spain’s emerging regions. “It’s been clear for a long time that Malaga has been in decline,” he said. “However, with areas such as Murcia becoming Spain’s new number one region, it will attract not just builders and potential purchasers, but agents as well.”

Richard Castro, commercial director for Grupo GMB, also suggested that Spain’s new markets might provide a solution, saying: “As with any market stabilisation after sustained years of growth there is going to be financial turmoil for a great many estate agents and indeed related businesses. It is important to underline that Spain is still the number one destination for UK buyers with greater numbers looking to relocate and that the Spanish national market is healthy. The investment market is driven by price and returns, inland Spain could be part of a solution for the moment.”

Costa del Sol developer Alanda Homes insists there are still massive opportunities in the luxury end of the Malaga market, but has hinted it will look at other Spanish regions such as Murcia.

Stucklin believes that relocating to new markets is not the answer, as he explains: “The solution is not to try and find a new area of Spain where the market is strong. The solution for agents in Malaga is to batten down the hatches, control costs, and improve customer service. A good place to start would be to only list properties at realistic prices, and provide buyers will all the documentation and information they need to make informed choices.” Story from OPP (subscription required)

Northern Spain is becoming increasingly popular with expatriates in search of real Spanish life and a haven away from the hectic Costas. It has long been a popular destination for Spanish tourists but certain parts of Northern Spain suffered something of a population drain until recently when the charm and beauty of the area has become popular and even fashionable once again with those in search of a better quality of life away from hectic city stress and cramped tourist towns.

Moving left to right the main property hotspots in Northern Spain are centred around Bilbao, Picos de Europa, Santiago de Compostela, Vigo and the Mino Valley.

If you’re a property hunter, across Northern Spain you will be rewarded with stunningly situated properties ripe for renovation, well located properties offering massive investment potential, sprawling country residences with plenty of space for those in search of a little peace and then right at the upper echelon of the market you’ll find incredibly luxury and chic city dwellings offering the very best in interiors, location, facilities, accessibility and amenities.

Beginning with the port city of Bilbao, which is the capital of Spain’s Basque region, the main entry point into Northern Spain and Spain’s most significant commercial port, this city boasts an impressive spectrum of property in its portfolio.

Up until the 1990’s the city was something of an embarrassment, and it didn’t begin reaching its potential as a city of commercial, financial, historical and cultural wealth until very recently. Thanks to massive regeneration and renovation Bilbao is now a significant Northern Spanish property hotspot offering everything from top end luxury apartments to traditional and ancient dwellings in the old quarter.

On the plus side for property investors the city is continuing to benefit from significant financial investment designed to raise its profile as both a main business centre player and an interesting city break destination, it is well serviced in terms of local accessibility and international travel links, it is beautifully located in one of the most stunning regions of Northern Spain and culturally it has a lot going for it - from the impressive Guggenheim Museum to the Casco Viejo.

On the down side…well, it is the most expensive area for real estate in Northern Spain and some areas of the city have yet to benefit from the regeneration and renovation I mentioned earlier.

Moving on, the Picos de Europa National Park offers a completely different range of properties and opportunities for both the property investor, those seeking a second holiday home in rural, beautiful Spain and those in search of a new lifestyle altogether. The 40km wide National Park is breathtaking and rich with flora, fauna, stunning views and opportunities for active outdoor pursuits from skiing to hiking, mountain climbing and cycling. Prices across the region are on the up as the destination increases in popularity with tourists and those seeking the cheap renovation property projects the area has become equally popular for. Be warned though, the region is fairly inaccessible in terms of local transport links, properties across the park can be quite isolated…which might be exactly what you’re looking for of course…and the area can get quite hot and sticky in the summer and suffer from sudden and dramatic rainfall making accessibility even more tricky at times.

In complete but complimentary contrast to the wild and natural beauty of Picos de Europa is the city of Santiago de Compostela. This UNESCO world heritage site with its impressive and world famous cathedral is actually one of Spain’s most incredible cities. It is also a site of pilgrimage and a centre so rich in art and history that it draws thousands of visitors every year. The city is known as the religious and cultural heart of the Celtic Galicia region and it has the added attraction of a micro-climate which affords it beautifully warm summers. Of course with all these features, attractions and benefits the city is not only a Spanish property hotspot it is actually an expensive hotspot and property prices in the city have been significantly increasing with 10 - 11% increases across Northern Galicia last year alone. But don’t despair; prices in the city are still far more affordable in comparison to properties in southern Spain, the city is directly accessible from the UK and it offers impressive property investment potential.

The lively and affluent coastal town of Vigo is a popular resort and is proving a consistently attractive prospect for foreign real estate buyers. Formerly famous for having Europe’s biggest fishing fleet the area is now as famous for its tourism and all it offers its visitors and residents - from its incredible Atlantic swept beaches to its funky and cosmopolitan cafe culture and nightlife. If you’re attracted by all Vigo has to offer - and who would blame you - and you’re looking for real estate in the area you’re probably assured good investment potential as property is still very affordable but more and more massively in demand.

Finally, the Mino Valley region of Northern Spain which is located on the Portuguese/Spanish border is an incredibly lush and beautiful unspoilt area of Spain. It follows the Mino river, is about 35km from great beaches and is as yet a relatively unknown tourist or expatriate area. That is all about to change however and the area is gearing up for an influx of both tourists in search of an active but peaceful destination and those expatriates seeking a brand new Spanish world. The region has so much to offer, it is incredibly lush as mentioned which makes for breathtaking natural scenery, it enjoys a healthy and warm climate and offers the property hunter everything from rural rundown renovation treats from around EUR 70k to luxury and expansive chalet developments reaching prices in the region of EUR 750k.

When it comes to bargains, real estate investment potential and a diverse and rich mix of property available for those in search of a second home in Spain, a Spanish home-from-home or a buy-to-let or investment opportunity, Northern Spain has it all in abundance.

Story from shelteroffshore.com

Foreign real estate investment in the Valencian region has fallen by a thousand million euros since high profile protests about ‘land grab’ laws began in the region, according to a recent study by the Bank of Spain.

Brenda Waddington of Spanish agent Rusticasa told the OPP that: “There has been an extremely noticeable drop in sales of rural properties over the last two or three years as people have been scared off by the stories of land grab, and many of those who were still prepared to go ahead bought in places like Catral and Albox where the rural houses were illegal and this has brought yet more horror stories. All totally avoidable as there are no risks associated with buying a property with full and correct planning permission which complies with current legislation. Having said that, rural properties were only a small percentage of the overall amount.”

Visits from EU representatives, in response to petitions from British expats, have had a damaging effect on perceptions of the area according to recent press releases from the Valencian government. The Valencian Minister for Territory and Housing, Sr. Esteban, Gonzalez Pons, said a recent visit was not only ‘whirlwind and touristic’ but the deputation appeared to focus on accusations relating to the old LRAU and not the updated LUV “which corrects the excesses and errors of the LRAU and implies a model of urbanism which is of quality and sustainable,” he said.

“Although the visits are giving a bad image altogether of the area, I do not think they are the main reason for the large drop in investment from overseas,” says Waddington. “I believe the main reason for the drop in investment in properties in Spain is the extremely large increase in the level of prices.

“Although the Valencian Government has been criticised for allowing so much development one has to remember that tourism, both residential and holiday, as well as the building of these properties, is a major source of employment and income for an area seeing its footwear, textile, toy and farming industries badly affected by imports from outside the EU. Quite understandably, they are desperate for it to continue, but there is not the demand for high density housing at high prices to sustain the previous level of sales, although reports suggest that the number of potential buyers is still there.”

Appeals to the European Court of Human Rights by British expats and regular visits from members of the European Parliament have had a major impact on local developers, according to the Valencian Confederation of Builders. The Bank of Spain study also highlighted a trend towards cross-border development by companies such as Hansa, Habitat, Fadesa and Pinar who are now building in France, Bulgaria, Rumania, Poland, Hungary and Portugal.

In a separate report from the Valencian Association of Real Estate Promoters and Builders, its president Salvador Vila said that around 22% of all homes that came on the market last year were sold to foreigners (with 76% bought by Spanish nationals and just under 1% by businesses). Vila claimed that 37,320 homes were sold on average each quarter last year and an average 17,000 mortgages a month were taken out.

Story from OPP (Subscription required)

Barclays is trying to increase the amount of business it does with intermediaries with the launch of a website designed to help advisers conduct overseas mortgage business.

The company claims the website is the first to provide the intermediary market with bespoke online tools to advise its clients on the overseas mortgage market and sell euro mortgages in Spain, France, Italy and Portugal.

It points out buying property abroad has become increasingly popular with British people over recent years and selling overseas mortgages could provide an additional source of income for many intermediaries.

Barclays says the website is a key component of its strategy to increase the amount of business it does with intermediaries, while at the same time enhancing its market share.

The new website, which is scheduled to be launched this week, is designed to make it easier for intermediaries to do business in the market by offering comprehensive information to help their clients understand the options available when deciding how to finance their overseas property, including:

• Direct access to English-speaking local mortgage experts.
• An agreement-in-principle process to provide feedback to clients on the likelihood of securing a mortgage on their property.
• Policy fact sheets, including Loan-to-Value ratios and terms and conditions.
• Step-by-step guide to the application process in each country.
• Income assessment tables and examples to help calculate the level of borrowing available.
• Overview of all costs associated with buying a property in each of the four countries.

Suzanne Clay, European business development manager at Barclays, says it sees intermediaries as a key channel for overseas mortgage products, and adds the website underpins this strategy by providing advisers with a “comprehensive and straight forward online facility” where they can access a range of mortgage products in four of the top markets for overseas buyers.

She adds: “We also believe the site will encourage intermediaries to open a dialogue with their clients and discuss all financial options available including euro mortgages and other overseas services.”

Full story from ifaonline.co.uk

Property expert Mark Stucklin analyses the state of the Spanish property market.

Foreign investment in Spanish property hasn’t lived up to the optimistic forecasts of just a few years ago, when ‘experts’ predicted that Britons and other Europeans would increase spending every year.

In reality, foreign investment in Spanish real estate has fallen since 2003, and by the end of May was some 33 percent below the level for the same period in 2003.

Nevertheless, I still think there are good grounds for optimism about the future of the Spanish property market, at least in those areas popular with foreign buyers.

European baby boomers officially start to retire this year, and will continue to do so over the next 20 years.

With the right financial advice millions of them will be able to afford a place in Spain, and I’m confident that many of them will end up buying into Spain’s higher quality of life and lower cost of living, where pensions go that bit further.

Though I see plenty of evidence that today’s buyers are more cautious then they used to be, I see little evidence of demand for Spain’s lifestyle evaporating.

I still expect significant problems in short term, and I think a few agents and developers might go out of business before the smoke clears.

But it’s still early days for Spain as the California of Europe, and looking 10 years ahead, I can only see it becoming more popular.

Market news

Foreign investment in Spanish property continues falling.

Foreigners spent EUR 1.962 billion on Spanish property in the first 5 months of the year, 13.2 percent less than a year ago.

10m want to quit ‘over-taxed’ UK

One in five Britons - nearly 10m adults - are considering leaving the country amid growing disillusionment over the failure of political parties to deliver tax cuts, according to a new poll by ICM.

Euro base rates and Euribor continue to rise

The European Central Bank (ECB) raised base rates from 2.75 percent to 3 percent at the beginning of August, citing concerns over inflation.

Consequently Euribor - the rate used to calculate interest payments for most mortgages in Spain - also rose in August to 3.615 percent, the 11th consecutive monthly increase, and the highest rate since July 2002.

One in eight homes are bought by foreigners

The latest figures from the Spanish government show that foreigners bought 31,342 Spanish properties during the first quarter of the year (January - March 2006), which amounts to 13.4 percent of the total number of properties sold in the period (233,670).

Tighter regulations on the way for estate agents in Spain

The Spanish press reports that María Antonia Trujillo - Spain’s Minister for Housing - hopes to introduce new regulations for estate agents by the end of the year.

Trujillo wants to tackle the speculation and abusive practises plaguing the sector, and increases legal protections for consumers.

Full story from expatica.com

An estimated 75,000 UK pensioners currently live permanently in Spain and Bank of Scotland International is warning them of the Inheritance Tax implications of living abroad.

Some will have given up their UK domicile and will be subject to Spanish inheritance tax on all assets. Under Spanish law, if a property is owned in joint names and one partner dies, the surviving spouse would inherit the deceased person’s 50% share – as in the UK where a property is held as joint tenants.

But for a Spanish domiciled resident, the surviving spouse would be subject to Spanish Inheritance Tax upon the half of the property that they have inherited. Inheritance Tax in Spain is charged at 7.65% to 34% upon a progressive basis. The 7.65% rate starts from €7,993.46 and 34% is triggered on amounts over €79,755.08.

This is different from the system in the UK where if assets pass to the surviving spouse, who is also UK domiciled for Inheritance Tax purposes, there would be no tax to pay as transfers between husband and wife are exempt from IHT.

The tax in Spain must be paid within six months of death but the property cannot be sold, or have the ownership details changed until the tax has been paid.

Bank of Scotland International points out that many British expatriates who have moved to Spain believe that, upon their death, their assets would pass automatically to their spouse tax-free, or be disposed of in accordance with their wishes as outlined in their Will.

Another assumption many people make is that they will not be liable for Inheritance Tax if they are living overseas. This is not the case. A person can be resident abroad but will generally still be domiciled in the UK and will be liable for IHT on their worldwide assets.

Spanish law dictates that, with regards to British property owners, British law should be applied in the event of death. The key factor behind Inheritance Tax is domicile, rather than residence. Your country of domicile is determined by where you were born and where your father was born.

The only way that you can lose UK domicile is to severe all ties with the UK and dispose of all of your UK assets. You cannot, however, lose your UK domicile until you have lived away from the UK for at least three years and even then you need to convince HM Revenue and Customers that you have acquired a new domicile with no intention of returning home.

To avoid any complications, many solicitors advise British expatriates to write a Spanish Will setting out how they wish to have their assets disposed of according to Spanish national law. For the majority who will still be UK domiciled, they will still have to pay UK inheritance tax upon all of their assets at a rate of 40% on estates over £285,000.

Story from citywire.co.uk

You have scoured all the brochures, visited countless properties and you have at last found your dream home. You now think that the decision making process is almost over and all you have to decide is what colour to paint the walls and the style of furniture you want in the living room. Unfortunately, there is still one important decision to be made – that is how you will finance your purchase.

Even if you are a cash purchaser, a mortgage may be a tax efficient way to avoid some of Spain’s harsh tax laws or perhaps re-mortgaging your existing UK property may allow you to lower your UK repayments, thereby releasing more funds to spend on your new Spanish Home.

This article looks at Spanish Mortgages and the primary differences between Spain and the UK and what must be taken into consideration when looking at each system.

Firstly, in the UK there is a very competitive mortgage market with Banks and Building societies vying for your business. In Spain the usual source of a mortgage is through the Banks, although some of the larger UK Building societies such as the Halifax, have established branches in Spain. Competition is no less fierce however, and you are perfectly able to take a mortgage offer from one bank to try and get a better offer from another, there is nothing to stop you playing one off against another, or even several!

The Spanish banks tend to have much stricter lending criteria than you will find on offer in the UK and this may cause problems. For example, the Spanish banks will usually only lend up to a maximum 80% of the value of the property and this can be even lower for a non-resident.

The important thing to mention here is that the value is not the current market value, the price you have agreed to pay, but it will be set by a valuation company and is based among other things, on the cost of rebuilding the property. This should not be confused with the UK survey, as it is not the condition of the property that is important, merely what its value is should it need to be sold by the bank and this is usually set at what would reflect a “worse case scenario”. Therefore, while you may be purchasing a property for say €250,000 the bank may consider the value to be only €175,000.

If the bank is then prepared to lend only 80% of this value (€140,000, and then only for residents with perhaps only 60% or €105,000 being offered to non-residents) you are then left having to find the remaining balance of €110,000, more if you are non-resident. It is not uncommon for purchasers to only be able to raise 50 or 60% of the property’s purchase price with a Spanish Mortgage, having to resort to other finance or existing capital to make up the difference. Such a way might be to remortgage a UK property for the balance, effectively meaning 100% of the purchase price is obtained by mortgaging two separate properties. A danger here is that the Spanish mortgage is far less flexible than the UK equivalent and should your circumstances change you are unlikely to be able to raise finance by releasing any equity in your Spanish home and you may have to consider re-mortgaging the property entirely, with the burden of the associated fees and charges. If you have already used the equity in your UK property your options might be restricted further.

Spanish Mortgages are also invariably for a much shorter period of time than their UK counterparts and repayment schedules of only 15 years are common. Certainly, the banks will want to see the mortgage redeemed by a maximum age of 75. You will also find that the banks are less generous than those in the UK when considering what a manageable amount to borrow might be. Typically they will lend an amount that can be repaid using no more than 30% of your disposable income. With the shorter periods of mortgage term this may increase the monthly repayments required and meaning the banks will not lend you as much as they might in the UK, which are based on a gross earnings multiple rather than disposable income. Some banks will make allowances for any rental income when calculating the amount they will lend, but most will not. All banks will however, take into account the joint earnings of the owners and will need to see payslips and bank statements to verify these figures as well as conducting a credit check on you.

Regardless of any perceived difficulties and the stricter lending requirements, it is a fact that the attraction of a Spanish mortgage is that traditionally Spain offered a far lower interest rate than available in the UK. This is due to the Spain’s interest rates being tied to the Euribor, (Euro Interbank Offered Rate) and mortgage rates of 3% or even less were common in 2005 and 2006 which compare favourably with even the most generous introductory rate offered here in the UK. However low the mortgage interest rates might be today, remember that rates may increase and so will your repayments. It is far better to borrow slightly less and have a degree of margin than be stretched should the interest rates rise.

Story from Iuris Tantum Group