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If we wish to purchase a property in Mallorca, whether it's to be used for a future investment or own use, we need to make sure that the investment is optimized.
This is why, even if you have the funds to purchase the property directly, it is always advisable to finance in order to benefit from tax deductions, maintain liquidity and diversify your portfolio, amongst other advantages. 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 collaborate with a team of mortgage experts, who are specialized in obtaining the best mortgage tailored to your needs and preferences at any given time.
We work with a team of mortgage experts, 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 FAQs and general information on this matter which will make it more comprehensible as a result of their expert advice.
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 70% but it depends on the property price and the financial profile of the buyer. Spanish tax residents can borrow up to 80% of the total value of the property.
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.
When considering purchasing a property, you always need to have in mind the costs involved in the purchase. These costs involved taxes, notary, registry and administration costs, amongst other expenses. These fees and taxes in Mallorca are generally between 8% and 12%, depending on the purchase price.
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.
Spanish banks usually offer a mortgage rate related to the European base rate the Euribor (e.g. Euribor plus 1.5%). The Euribor is the main indicator for variable rate mortgages in Spain. 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.
Currently these types of mortgages 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.
While it is possible to walk into a Spanish bank branch and apply for a mortgage, it might not be the right bank for you. A mortgage broker acts as one contact for all banks and will obtain better rates and conditions for you. They will take care of the whole process and will make you save time, money and effort.
Pollentia Properties actively collaborate with Lionsgate Capital, the leading mortgage experts in the Balearic Islands. The Lionsgate Capital team are independent experienced professionals in the Spanish banking industry, who understand that every client is different and who do everything possible to find the best bank, mortgage and conditions for your personal application.
After an initial conversation with the Lionsgate Capital team to identify your circumstances, your current needs and expectations, the mortgage expert will explain everything about the mortgage and the process, including repayments, interest rates, conditions, etc.
After the initial assessment, your broker will send you the documents you need to complete and return. Your documentation will be studied and sent to the banks that best fit your profile and preferences to make sure the optimal conditions are obtained. It is always advisable to appoint a local lawyer before signing the reservation contract and paying the deposit. You will also need to apply for an NIE number (foreigner identity number), which can be obtained in Spain or from the Spanish embassy in your country of residence.
After the mortgage offer has been accepted, a certified surveyor must visit the property to carry out the property valuation. As long as the valuation is correct with no warnings or conditioning clauses, the chosen bank will be in a position to open the client’s bank account and issue the formal offer.
Once everything is in place, your Lionsgate Capital mortgage broker will send you the final breakdown of costs, listing the various fees and taxes related to your purchase
and mortgage which in general add up to between 8% and 12% of the overall purchase price. At this point, you will also know the exact amount you will need to transfer to your bank account for the reminder of your purchase.
Completion takes place at a notary office and you, or your legally appointed representative must attend. At completion, two deeds will be signed, the mortgage deed and the purchase deed. Once signed, the payments will be made, and you will receive the keys to your new home!
A mortgage expert from the Lionsgate Capital team will be with you throughout the process, guiding you and helping you to get the best deal and ensuring a smooth process right to the end.
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 mortgages 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 points to be aware of, but it is important to get professional advice from Lionsgate Capital 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.
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 analyze the project and valuation itself. Some banks might provide initial pre-approvals, but these are not binding.
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.
Clients do not need to own the land prior to going to the notary to sign the mortgage deed, although many clients do 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 although the banks cannot mortgage the purchase of the land, they can generally finance up to 100% of the building costs as long as it is within 60-70% of the value of the total project, which includes the land. Depending on the bank and the project, an amount will be released upfront and the rest of the mortgage funds are released in stage payments as the build progresses. 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.
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 realize 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. The Lionsgate Capital of mortgage experts will help you optimize your real estate investment with the most suitable mortgage or finance solution based on your profile and personal requirements.
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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