Mortgage Laws in Spain: The Differences for Residents and Non-Residents

Are you considering purchasing a property in Spain and needing a mortgage? Spain’s new mortgage laws bring good news for nationals and foreigners, but there are important factors to remember, especially for non-resident borrowers. In this article, we’ll examine the key aspects of Spain’s mortgage laws and provide valuable insights for a smooth mortgage application process.

Spain’s Mortgage Laws: A Positive Shift

Spain’s mortgage laws favoured banks in the past, often putting borrowers at a disadvantage. However, in 2019, the country introduced new “hipoteca” (mortgage) laws that offered more favourable conditions for resident and non-resident borrowers. These changes include extended default periods before repossession, increased mortgage fees borne by banks, and the flexibility for borrowers to convert foreign currency-denominated mortgages into euros.

Resident vs. Non-Resident Borrowers

One significant distinction in Spain’s mortgage landscape is the difference between resident and non-resident borrowers. Non-residents are those buying a second home in Spain and, as a result, may face higher interest rates than foreign residents. Non-residents typically expect an interest rate of around 2.5% for a 20-year mortgage, with an additional variable rate of 3% on top of the Euribor index.

Financing Differences

Another critical aspect to consider is the difference in financing options for residents and non-residents. If you spend fewer than 183 days in Spain, you might face challenges securing financing for a Spanish mortgage, and you will likely need to make a larger initial down payment. On the other hand, residents can often access more substantial loan amounts, covering approximately 70 to 80% of the total property value, with more attractive interest rates. Non-residents can expect a Spanish bank to provide only around 60% coverage.

Credit Rating Requirements

For non-residents seeking a mortgage in Spain, providing a credit rating statement from your bank in your home country may be a necessary step. Companies like Experian in the United Kingdom and Transunion in the United States offer such services, providing an additional guarantee for the lender.

Mortgage Repayment Periods

The repayment period for a mortgage in Spain can significantly impact your monthly payments. Unfortunately, Spanish banks are more likely to offer non-resident borrowers mortgages with shorter terms, typically up to 20 years. In contrast, residents can obtain mortgages with terms extending up to 40 years, resulting in more manageable monthly payments.

Tax Implications for Non-Residents

Non-resident property owners should be aware of higher taxes when selling their property in Spain. Transaction costs for both residents and non-residents can amount to 10-12% of the property value. Additionally, non-resident sellers must consider the Non-Resident Income Tax (IRNR) and the Tax on the Increase in the Value of Land of Urban Nature (IIVTNU or municipal capital gain tax). IRNR retention, set at 3% of the selling price, goes directly to the Spanish Tax Office, while municipal taxes are typically determined at the local level.

Nationality Considerations

Reports suggest that your home country may influence the ease of securing a mortgage from a Spanish bank as a non-resident. Prospective buyers from certain countries, such as those in the EU, the US, Australia, New Zealand, Hong Kong, and Singapore, might experience a more streamlined mortgage approval process. On the other hand, applicants from the Middle East, India, China, Russia, and Africa may face more challenges. However, this trend may evolve based on demand, with banks adapting to cater to clients from various regions.

Document Translations and Notarisation

Non-resident borrowers may encounter language barriers if their documents are not in Spanish. In Spain, official documents need to be translated by a sworn translator, incurring an additional cost. Some banks may also require the Hague Apostille stamp for certain documents to ensure international authentication. Residents, too, must notarize documentation when applying for a mortgage and obtain a “Número de Identificación de Extranjeros” (NIE), the Spanish identification number for foreigners.

Explore Mortgage Options

While some smaller banks in Spain may be hesitant to offer mortgages to non-residents, prominent institutions like Banco Santander, BBVA, and CaixaBank do extend such opportunities. Moreover, non-residents can explore mortgage options through international banks like Chase or IMS or consult with mortgage brokers specializing in foreign clients.

Benefits for Non-Residents

Despite the differences between resident and non-resident mortgages, some positives exist for non-resident borrowers. The bank typically covers initial costs and charges related to the mortgage contract, making mortgages more cost-effective. Only the property appraisal and settlement fees are generally assigned to non-resident clients, with some Spanish banks even covering these expenses. Additionally, non-resident borrowers from outside the eurozone can pay their mortgage in their home country’s currency at the applicable exchange rate.

In conclusion, Spain’s new mortgage laws offer promising opportunities for both residents and non-residents. While non-resident borrowers may face some challenges, thorough preparation and understanding of the nuances can make the process smoother. As you embark on your journey to own a property in Spain, staying informed and seeking professional guidance will be invaluable in securing the right mortgage for your requirements.