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How To Finance A Spanish Property

Nov 30, 2007
For many people, buying a property in Spain will entail arranging a mortgage. There are a number of options available to prospective buyers and, as with all other aspects of the purchase, thorough research at an early stage will ensure that you make the best decision for your personal circumstances. There are a number of companies such as procoal that will help you through the process. It is a good idea to make some preliminary enquiries before looking at properties so that you are aware of how much you can borrow and what you can afford.

Releasing Equity to Finance the Purchase

The UK, in particular, has benefited from strong growth in the housing market in recent years with homeowners accruing significant equity in their properties. Releasing some of this built-up equity to finance the cash purchase of a property in Spain is the simplest and most popular method for people in this situation. The amount borrowed is secured against the main home and will either have to be repaid over the term of the mortgage or at the end of the mortgage term.

Arranging an International Mortgage

Some Banks offer a range of mortgages for Spanish properties in Euros or Sterling. Repayment can be possible through a UK bank account. For people unfamiliar with buying a property abroad, using a domestic lender has a number of advantages. They can provide a complete purchasing solution and will ensure that all essential legal work is carried out. With Procoal all aspects of the transaction will be explained in English and the following additional services can also be provided:

-arranging a Spanish non-resident identification number (NIE) to allow you to purchase a property in Spain;
-setting up a Spanish bank account for you;
-arranging direct debits to be set up for utilities; and
-arranging payment of annual property tax (IBI) and the community charges for the property.

Of course you can pick and choose how much assistance you want from the lender. As a responsible developer, we can help with many of the additional services described above.

Arranging a Spanish Mortgage

Spanish banks are also able to cater for the needs of the foreign property buyer, so you may want to consider arranging a local mortgage. Mortgage rates in Spain have been more competitive than in the UK in recent years so this can be an attractive option, but bear in mind that you will need to take fluctuating currency exchange rates and money transfer costs into account if your income is not generated in Spain. Some cash will normally be required to part-finance the purchase.

Most lenders will typically lend up to 70% of the purchase price for non-residents and up to 80% for residents. A variety of mortgages are available including variable interest rate repayment, fixed interest rate repayment, interest-only and endowment. Repayments can be spread over 5 to 30 years but must be repaid by the age of 75. As in the UK, Spanish mortgage lenders will require proof of income or security against the loan and will act responsibly to cap the amount that can be borrowed. Almost all lenders will charge an arrangement fee of between 1 and 2% of the amount borrowed.

If this is the option that you want to take, consider employing the services of a reputable mortgage broker, fluent in your own language, to assist in securing the loan. The broker will be able to use his local knowledge to advise which lenders are likely to consider your application most favourably. The broker's fee is normally paid by the lender as a percentage of the arrangement fee.
About the Author
Shaun Parker has been working in the mortgage industry for a number of years. He works for procoal where he shares his expertise to help people find the right deal for them.
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