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Pollentia Properties advises you about mortgages for buying a property in Mallorca

If we wish to purchase a property in Mallorca, we need to be sure of, whether it's to be used for a future investment or own use, that the final purchase result is optimum.

This is why sometimes we need a bit of a financial boost, and in this case at Pollentia Properties we have the solution to your problems. As well as having a team of professionals behind each transaction to be able to assure maximum safety for our clients, we also have professionals who search for the bank's best offers so you can buy your new property without having to worry about searching for options.

We work with a company which specializes in searching for the best and most suitable mortgages for our clients who have started the process of purchasing a property in Spain. Below you can see answers to F.A.Qs and general information on this matter which will make it more comprehensible as a result of their expert advice.

How much can I borrow?

The percentage of the property cost that is mortgaged is known as the Loan-to-Value (LTV) percentage. It’s based on the lower of valuation or purchase price. For non-residents (who don’t pay tax in Spain) the maximum LTV is 60-70%% but depends on property price and financial profile of the buyer. For fiscal taxpayers the maximum is 80%.

Can I afford it?

In terms of what you can borrow, the banks consider your Debt-to-Income ratio (DTI). They will require that approximately one-third of your net monthly income covers your existing debts including any rent you might pay plus the new Spanish mortgage.

What other costs must I pay?

Fees and taxes relating to the property purchase and the mortgage set-up are generally 9- 13% of the property price, depending on the region of Spain. The buyer generally must prove they have these funds before the mortgage is agreed.

Will I be approved?

It’s advisable to get a mortgage approved in principle before starting the purchase process. This will confirm the upper limit of the price range in which you search and can put you in a stronger position when negotiating the property price; the vendor will know you are serious and can move quickly.

What type of mortgage? Fixed or Variable?

Spanish banks usually offer a mortgage rate related to the European base rate the Euribor (e.g. Euribor plus 1.5%). The percentage added to the Euribor depends on various factors, mainly the LTV, the income/debt profile of the client and the term of the mortgage. The monthly payments on a variable rate mortgage will go up or down according to movements in the Euribor. Fixed-rate mortgages are also available for the whole term, usually offered at a higher addition to the Euribor but with the certainty that repayments won’t change.

Buy-to-Let? Interest Only?

Currently these types of mortgage that are common in the UK and other countries are not yet offered by Spanish banks. If you plan to rent out your new Spanish property, potential rental income won’t be considered in your DTI calculation.

How to apply for a mortgage?

While it is possible to walk into a Spanish bank branch and apply for a mortgage, you are likely to get a better deal by applying via a licenced broker. They will have access to better deals than are on offer in the high street and will know which banks are best suited to a buyer’s financial profile. They can help with presenting the financial documents required and are permitted to keep the buyer updated throughout the purchase process.

Which broker to use?

Pollentia Properties has chosen to collaborate with Mortgage Direct over other brokers/intermediaries. They have been operating in Spain since 2006 and since then have cemented their place as the leading independent broker in Spain. They were one of the first brokers to achieve the Bank of Spain’s official licence (introduced in 2020), are completely independent and have a wealth of experience in a market where contacts are everything and premium service is key.

The mortgage process

Case assessment

Mortgage Direct will invite you to share your financial details via their online Affordability Check process. It’s designed to ask all the details needed to assess your case but you can also send additional information by email or discuss anything that’s unclear in your first conversation with the adviser.

No-obligation quote

Once assessed, if you qualify in principle for a mortgage with one of Mortgage Direct’s advisers, you will receive a no-obligation quote. There is no fee for the advice given or for the quote. There is no obligation to proceed with an application. The quote outlines the terms of the mortgage and what fees and taxes will be payable.

Administration fee

If you decide to proceed with a mortgage application an administration fee is payable. This comes with a money-back-guarantee if Mortgage Direct is not able to secure you the mortgage. It can cover multiple applications with different banks or for different properties. It does not have an expiry date.

Supporting documentation

Your broker will advise what documents will be needed to support your application and will discuss the opening of a Spanish bank account with the proposed lender. You are advised to appoint a lawyer before signing the reservation contract and paying the deposit. You will also need to apply for an NIE number (foreigner identity number).

Approval

On the strength of the documentation provided, the selected bank will approve or decline the mortgage subject to valuation.

Initial Approval Fee

At this stage Mortgage Direct will inform you of the Initial Approval Fee that is due before the valuation is instructed. This is a fixed percentage of the mortgage amount with a minimum amount.

Valuation

The proposed lender will require the property valuation to be carried out before they give the formal approval of the loan and they will usually select a company at random from their panel of independent valuers although under the new legislation, the client has the right to select their own company (approved by the Bank of Spain). The valuation fee must be made before the valuation can be instructed. If the valuation is suitable, the bank will confirm the conditions and will then liaise with you, the agent and both lawyers to calculate the funds that must be made available in your account. Once the funds are in place, the arrangements for completion can be made.

Completion

Completion takes place at a notary office and you or your legally appointed representative must attend. After the deeds have been signed, the cheques are distributed, the keys are handed over and the mortgage process is completed.

Keeping you informed

Your Mortgage Direct broker will be available at all stages to help you understand the process and to keep you updated about your case. As holders of the Bank of Spain’s official broker licence they are permitted to liaise with the lender on behalf of the borrower. Unlicensed brokers may only introduce you to the lender and must cease their involvement at that stage.

SELF-BUILD AND REFURBISHMENT MORTGAGES

There are many different ways to finance a construction or refurbishment project. The type of financing will depend on the status of the project and the client’s overall ambitions. These types of mortgage are very different to a standard mortgage and can include products from traditional retail banks as well as private lenders. In this article we have tried to give an overview of the main issues to be aware of but it is important to get professional advice from Mortgage Direct before embarking on such a project.

The first point to make clear is that clients need to have sufficient funds as the lender will not finance the whole project. This includes not only the down payment but also professional fees, taxes and some of the construction costs. It is also important the client has surplus funds to ensure that the ongoing costs can also be met when waiting for stage payments to be made available by the lender.

If you are lucky enough to already own a property in Spain and are only looking to finance some refurbishments, then financing is also available. The documents required by the lender will be based on how much refurbishment work the client is looking to undertake. If for example, the client is looking to do works that do not require planning permission, then the lender may only require quotes from a recognised building company. If the project is more extensive, then much of the information that follows in this article will apply.

UNDERWRITING PROCEDURES

An important point that clients need to be aware of is that the banks underwriters will not underwrite applications until a valuation has been carried out, especially on construction mortgages. This is so that they are aware of the value of the plot and the project costs before they make an assessment on the financial profile of the client.

It is therefore important, not only to have a qualified professional make a thorough assessment of the client’s financial profile but also analyse the project and valuation itself. Some banks might provide initial pre-approvals, but these are not binding.

MINIMUM DOCUMENTATION FOR CONSTRUCTION AND SOME REFURBISHMENT MORTGAGES

Aside from the usual documents to prove affordability; lenders will also require copies of the Proyecto de Ejecución (Project of Execution), Licencia de Obra (Building License) and the Presupuesto (Quote) from the main contractor with detailed cost breakdown, before they will underwrite the application for construction or a large renovation mortgage.

OWNING THE LAND

Clients do not need to own the land prior to going to the notary to sign the mortgage deed, although many clients purchase the land first or have owned it for some time before they apply for the mortgage, especially in the case of a refurbishment finance. Clients can purchase the land at the same time as signing for the mortgage and the banks can finance up to 50% of the cost (or value if lower) of the land at the notary and following that initial payment, the rest of the mortgage funds are released in stage payments as the build progresses. The typical amount of financing available is around 60-70% of the value of the project, which includes the land. The number of stage payments is usually agreed between the applicants and the lender. At each point when a new stage payment is due, a specialist valuer will visit the site to assess progress on the build and decide if the next payment can be released by the lender.

FINAL STAGE PAYMENT

Lenders do not provide the last stage payment until the Certificado de Fin de Obra and Cédula de Habitabilidad are available, which means the funds are not usually available before the developer requires their own final payment. At the start of the project, when deciding on the number of stage payments, it is important to realise that there may be other points in the process when the developer requires payment, but the bank is not ready to release more funds.

There are many factors to consider when building or renovating a property in Spain and it is important to talk to an expert to understand fully the financing options before committing to the project. At Mortgage Direct, we would be happy to assist you.

Mortgage adjusted to your needs

We want all of our clients to find a mortgage adjusted to their needs in as little time possible thanks to our experience in the sector, and always guaranteeing maximum professionalism and implication.

Purchasing a property in Mallorca can be a little confusing if you don't know the banking or juridical system well, so at Pollentia Properties we can assure you that we'll be here to help orientate you during each of the stages you may wish and solve all of the problems.

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