Buying Guide
CONTENTS 1 2 Introduction Buying Property in Spain Before You Buy 3 4 5 The Buying Process Post-Completion Spanish Lawyers 6 Currency Exchange 7 Spanish Mortgages 8 Finance & Mortgage Summary
1 INTRODUCTION - BUYING PROPERTY IN SPAIN Buying a property in Spain can be an exciting and rewarding event, but it s also a big step to take and needs careful planning and research, particularly in these uncertain economic times. Prospective buyers usually have a multitude of questions, and our Buying Guide goes a long way to answering most of those questions, and is sectioned into an easy menu so that you can quickly and easily find the answers you are looking for. From tips on how to find the most reliable and professional agents to money-saving hints on how to obtain the best rates of exchange, our guide covers a variety of topics. Our Before You Buy section provides advice on how to tackle fundamental issues such as choosing the most suitable location and agents in Spain, together with tips on how to effectively conduct your search for that perfect Spanish property. The Buying Process covers everything you need to know about the mechanics of buying a property in Spain, from dealing with contracts and completion to managing the costs of purchasing a Spanish property and the ways in which a Spanish lawyer can often simplify this process. Our guide also covers post-completion issues such as opening bank accounts, paying the bills and furnishing your new Spanish property, while separate sections offer advice and guidance on the key areas of the Spanish legal process, foreign currency exchange and Spanish mortgages.
2 BEFORE YOU BUY There are plenty of things to consider before buying a property in Spain! There are the obvious matters that need careful consideration, such as location, budget and the actual reasons for the purchase, but then you will need to choose a professional agent to provide a showcase of suitable Spanish properties that match these criteria, and then make the arrangements to actually visit your chosen area of Spain. Then when you ultimately find that perfect place, you will then need to know what is required to make it yours. What are my reasons for buying a property in Spain? How should I choose the best location? How should I determine my budget? How should I choose an agent? What is the best way of viewing properties? What should I do if I see a property I like? What should I take with me?
How should I choose the best location? When looking to buy an overseas property, buyers are faced with many options. Spain attracts the highest number of overseas buyers in Europe. There are many reasons for this. Firstly, the weather in Spain is perhaps the best in Europe, with long hot summers and mild winters typical in Southern Spain. Another key reason for Spain s popularity is the ease and price of access to the country from abroad. Most northern European countries now operate low-cost airlines to the most popular Spanish destinations, such as Malaga, Barcelona, Valencia, Almeria, Alicante and Murcia. The combination of cheap flights and 2 hour journey times from most northern European cities encourages the jet-set lifestyle, with many buyers able to hop on a plane on a Friday night, and be back at their work desks on Monday morning, suitably refreshed after their weekend break in their Spanish property. When you add the obvious factors such as weather and access to other benefits such as cost of living, security and international appeal, it s easy to see why Spain is so often the first choice destination for so many people. Choosing the ideal location within Spain will depend upon your reasons for purchasing a property here. If you are seeking an easily accessible winter getaway, then you may want to consider heading for one of the destinations in Southern Spain such as the Costa del Sol, Costa Almeria, Costa Calida or Costa Blanca. If you wish to be near the stunning city of Barcelona and the French border, then perhaps the Costa Brava is the place for you...or how about a home from home on one of the Balearic Islands - Majorca, Menorca or Ibiza. Then again, if flying a little further afield doesn t bother you, the Canary Islands of Tenerife, Lanzarote, Fuerteventura, Gran Canaria and La Palma offer a superb year-round climate.
The investment potential of a particular area may also be an important factor in your choice of location. Perhaps you would prefer the unspoilt coasts and fabulous beaches of the Costa de la Luz in favour of the year-round shopping and fabulous nightlife of the Costa del Sol. Very often, the undiscovered areas may seem to offer the best value for money...but will they provide all of the attractions that you may require? Some areas may appear expensive in comparison to others, but these also tend to be the most wellknown and therefore the most popular locations, an important factor if you are considering your Spanish property as a rental investment. All of our agents and collaborators in the various locations in Spain have been hand-picked and vetted for their intimate local knowledge, their wide selection of products and their professionalism and integrity. If you are unsure about which area of Spain to choose, please contact us and we will be happy to provide further information on each area, whether it be the details of local schools, or the price of a loaf of bread!
How should I determine my budget? It is important to have an idea of the budget for your Spanish property purchase before you set out looking. Many people use a combination of cash or equity release (remortgage) from their existing property together with a Spanish mortgage to finance the purchase of their overseas property. The mortgage rates in Spain are at an historically low level, and many people are using these low rate mortgage products rather than using all of their hard-earned cash. Your budget may also be affected by the rental potential of your property. Very often, the income generated from 10 weeks rental of your property can be enough to cover over 6 months worth of mortgage payments on your property in Spain. We have selected a small number of specialists in the areas of Spanish mortgages, equity release (re-mortgages) and general financial advice to answer any questions you may have before determining your budget. For further information, please consult our Spanish Mortgage section. How should I choose an agent? If you are looking to buy a property in Spain, it is important to choose an honest and reputable agent to assist you. With the huge choice of agents in Spain together with the numerous exhibitions and press advertisements at home, this alone can be a daunting process. Cloud Nine Spain has travelled the length and breadth of Spain to seek out those agents that operate to strict standards of professionalism, honesty and integrity. These agents are not always the largest companies, but they will be able to offer a personalised and friendly service, and are equipped to expertly guide you through the buying process.
What is the best way of viewing properties? Perhaps the most exciting stage of your property purchase in Spain, viewing visits are the easiest way of seeing your chosen area of Spain and the most suitable properties within it. Be sure that you don t sign up for a Viewing Trip simply on the basis of cost. Very often, when a trip is subsidised, you can find that you have little control over your itinerary. Cheapest doesn t always mean best. Most reputable agents will offer a full or partial reimbursement of the cost of your visit in the event of purchase. It s important to ensure that you have some time away from the sales consultant or agent so that you can discuss what you have seen in an objective manner. Depending upon the area, 2-3 night viewing trips are normally adequate. Good agents will have spent time with you on the phone discussing all of your criteria, and should have prepared a shortlist of suitable properties in time for your arrival in Spain. Many buyers try to do it themselves and deal with lots of different agents when they come to Spain independently in search of property. An independent visit is not a bad idea in itself, but a combination of agents can lead to confusion. Many agents in Spain have access to networks and multiple listing systems, meaning that agents often have access to the same portfolio of properties. By trying to cover all of the angles, you may actually lose a sense of objectivity by dealing with multiple agents.
What should I do if I see a property I like? People are often ill-prepared to act if they see a property that they actually like. In the Spanish property market, particularly when buying from a developer, there will be no emotional bond between buyer and seller, so it will very often be a case of first-come, first-served. In the case of resale properties, generally if you see a property that you like, you will need to pay a reservation deposit (normally in the region of 3,000-6,000 euros) when you make an offer. This means that your offer is taken seriously and your deposit will only be forwarded to the vendor if and when your offer is accepted. This is a good ploy particularly when making low offers. It gives your offer real weight (i.e. you have been prepared to put your money where your mouth is!). Once the offer is formally accepted, the property is secured in your name, AT THAT PRICE. Sometimes, developers will allow you to reserve a property overnight, or for a few hours, so that you can mull things over in peace. In some circumstances, a reservation deposit is refundable within 30 days if you happen to change your mind. Check all of these details with your agent. What should I take with me? You have selected your chosen area, you have an ideal budget, and you have seen the perfect place. What will you need to secure the property? Normally, reservations are taken on a credit card, so it is often a good idea to inform your credit company before leaving home that you may be making a transaction whilst you are away. Paying a reservation deposit by cheque or bank transfer can delay matters by more than a week, and most developers and vendors will be reluctant to accept this method of payment, as there may be other people able to place an instant deposit on the same property. To reserve a Spanish property, apart from a credit card, developers or vendor agents will require a copy of your passport.
3 THE BUYING PROCESS Although the process of buying a property in Spain can seem daunting to most people, the reality is that with the right help and advice, and by working with the right people, this process should be relatively straightforward. By understanding the role of lawyers in Spain, together with the various stages and costs of the purchase, you will be fully prepared for a stress-free transaction. Will I need a Lawyer in Spain? Do I need to check my contract? What happens at completion? What are the costs of buying a property in Spain?
Will I need a Lawyer in Spain? Once you have chosen your property in Spain and paid your reservation deposit, you should then seek the assistance of a lawyer (our section on Spanish Lawyers provides detailed information and advice). The lawyer will liaise with you during the course of the purchase, reminding you when payments are due and checking that contracts and deeds are all in order before signing on your behalf or asking you to sign the documents. Do I need to check my contract? Between paying your reservation deposit and signing private purchase contracts (normally a period of thirty days), your lawyer will check the contract to ensure that the property you are buying is free of debt, legally owned and (in the event of buying off-plan from a developer) that bank guarantees are in place to protect your funds in the unlikely event of the developers going bankrupt. Once the lawyer is happy with the contract, he/she will then ask you to transfer your funds to their client account in Spain. We would advise using a currency exchange specialist if you are a citizen of a non-euro country. The amount of money required at this stage depends on the type of property that you are buying in Spain. Very often for resale property in Spain, 10% of the purchase price is due at this stage. When purchasing off-plan property from a developer in Spain, the payment terms will dictate the amount due at this stage. This figure normally varies between 10% and 50%. Once the lawyer has received your funds together with the signed contract, your payment will be forwarded to the developer or the vendor. The signed contract will set out when further payments are due, and will also include a forecasted completion date.
What happens at completion? When you are buying a resale property in Spain, completion normally takes place within 6 weeks of signing contracts. This gives buyers enough time to arrange a mortgage and organise finances, furniture etc. When buying off-plan property in Spain, there may sometimes be interim payments due prior to completion, or simply the remainder of the funds payable at completion (this will depend upon the payment terms in the contract). Before arranging completion of your Spanish property, your lawyer will check that the description of the property matches that provided and promised by the vendor or developer, and that a licence of first occupancy has been granted (in the case of off-plan properties). Once the lawyer is happy with the property, he/she will ask you for the funds due at that point, and will liaise with your lender regarding any mortgage that you wish to take out on the property. Once the funds have been received by the lawyer, you will sign the title deeds, either in person, or by power of attorney with your lawyer in Spain, and the property is then legally yours. In addition, to become the owner of a property in Spain, you will need an NIE number or certificate. These are issued by the local police station, and your lawyer will normally be able to arrange this on your behalf, although he/she will probably require a power of attorney unless you want to attend the police station in person, often a laborious and time-consuming task.
What are the costs of buying a property in Spain? Normally, if you allow for a figure of around 10% - 11% of the purchase price, this will cover the costs of purchasing a property in Spain. This figure comprises legal fees which normally account for 1%, iva or transfer tax of 7% or 8%, plus notary fees, land registry fees and stamp duty. If buying with a Spanish mortgage, there will also be fees associated with the mortgage, such as stamp duty and arrangement fees. It should be noted that during 2012, the Spanish government has lowered the iva level on new properties to 4%.
4 POST-COMPLETION How do I organise utility contracts? There are several things that can only be arranged once you become the legal owner of your property in Spain. Once you have signed the title deeds, you will be able to apply for utility contracts such as water and electricity, and set up direct debits to ensure these bills are paid. This is something that your lawyer in Spain can organise on your behalf. How do I set up a bank account? Your lawyer will also be able to help you in setting up your bank account and arranging home insurance for your property in Spain. This is a simple process. How do I arrange the furnishing of my property in Spain? Furnishing your property can often seem like a chore, but many buyers simply instruct a home furnishings company to do the job for them a few months prior to completion. Obviously this will depend on the reasons for the purchase. If you are buying the property purely as an investment, you may prefer to take a hands-off approach to furnishing the property. However, most buyers enlist the help of a furniture specialist (often recommended by the agent) and also shop around for some items themselves.
5 SPANISH LAWYERS When buying a Spanish property, it is vital that you use a qualified lawyer in Spain. The legal system in Spain is different to that of any other European country, and its complexities can sometimes baffle buyers who try to do it themselves. What are the costs? Lawyers in Spain generally charge 1% of the property price for their services. This may appear expensive, but it s best to treat this as an important investment to safeguard your funds and to provide peace of mind. Who should I choose? Your Spanish lawyer should speak your native language, but be based in Spain. He/she may be recommended to you by your agent, or you may have been referred to your lawyer via friends or colleagues who have bought a Spanish property in the past. The lawyer should be independent, not working for the vendor or developers.
What does the lawyer do? The lawyer will liaise with you during the course of the purchase, reminding you when payments are due and checking that contracts and deeds are all in order before signing on your behalf or asking you to sign the documents. Between paying your reservation deposit and signing private purchase contracts (normally a period of thirty days), your lawyer will check the contract to ensure that the property you are buying is free of debt, legally owned and (in the event of buying offplan from a developer) that bank guarantees are in place to protect your funds in the unlikely event of the developers going bankrupt. Once the lawyer is happy with the contract, he/she will then ask you to transfer your funds to their client account in Spain. We would advise using a currency exchange specialist if you are a citizen of a non-euro country. Once the lawyer has received your funds, together with the signed contract, your payment will be forwarded to the developer of the vendor. The signed contract will set out when further payments are due, and will also include a forecasted completion date.
Before arranging completion of your Spanish property, your lawyer will check that the description and measurements of the property match those provided and promised by the vendor or developer, and that a licence of first occupancy has been granted (in the case of off-plan properties). Once the lawyer is happy with the property, he/she will ask you for the funds due at that point. Many people will use a Spanish mortgage at this point (further information is available in our Spanish Mortgage section). Do I need to be in Spain to sign these documents? When buying a Spanish property, you can arrange a Power of Attorney with your lawyer in Spain. This document is signed by you and gives your lawyer power to act on your behalf in relation to the purchase of your property, meaning that he/she can sign documents on your behalf. This means that there is no need to personally be present when contracts or deeds are signed. What else can my lawyer in Spain do for me? Lawyers in Spain are accustomed to people from all over the world buying property in their country, so they understand how difficult the process can at first appear. Your lawyer can assist with making wills, opening bank accounts, arranging utility contracts and direct debits, arranging property insurance and liaising with developers regarding snagging issues. Your lawyer in Spain may also be able to provide useful introductions to Spanish mortgage providers and lenders.
6 CURRENCY EXCHANGE This section is relevant for those buyers from outside the euro-zone seeking to purchase property in Spain. Should I use a specialist firm to convert my currency? The slightest changes in the currency rates can affect the cost of your property in Spain. For a Spanish property priced at 200,000 euros, a difference in the exchange rate of just 1 cent could cost or save you almost 1,000 euros on the transaction. That 1,000 euros is surely better being in your pocket! Banks and currency exchange specialists all buy and sell currency in bulk, and so are able to offer much better rates than the day-to-day tourist rates. While banks engage in other business, exchange companies specialise in one area and can often beat the bank quotes.
How do I actually transfer my money? Once you have decided to use a foreign exchange company, you will need to sign and complete their standard compliance forms, and then simply tell them the amount you need to transfer and provide the details of the destination account in Spain. They will then tell you the rate that they could achieve, and if you are happy with that, they will ask you to transfer the funds to their own holding account. The funds will be transferred at the rate agreed and the euros will be on their way to Spain. Can I guarantee an exchange rate? There are various ways of determining and fixing a rate for future transfers. This is very useful if you feel that the currency market may dip, particularly if you are making staged payments to a developer to buy a property in Spain. We would advise you to discuss this with your currency consultant.
7 SPANISH MORTGAGES How much can I borrow in Spain? Spanish mortgages are normally available (subject to status) for non-residents up to 70% of valuation of the property, though most lenders prefer to work on the basis of 70% of the actual selling price (if it is lower than the valuation price). Indeed, some banks have recently withdrawn lending at 70% and prefer to offer maximum mortgages of 60% of the purchase price. What mortgage interest rates are available? Spanish mortgage rates vary depending on the type of product and are based upon the EURIBOR rate - check with our mortgage experts for the exact figure, as this changes regularly. What type of mortgage products are available in Spain? The mortgage market in Spain isn t as sophisticated as in other countries. The vast majority of Spanish mortgages are simple capital and interest repayment mortgages. Since the credit crunch, there are fewer mortgage products available, so don t expect interestonly, fixed rate or self-cert mortgage deals in Spain.
Can I re-mortgage at home to buy a property in Spain? Yes, you can, as long as there is sufficient equity in your property at home and your lender agrees to provide funds. Is it possible to obtain 100% finance on my Spanish property? It is true that some Spanish banks are sometimes willing to offer 100% Spanish mortgages to buyers on their key-ready, unsold developments. BUT, please beware, as sometimes you can purchase cheaper properties within the same developments by simply shopping around local estate agents and finding a private vendor who is willing to sell at a good price. Occasionally, we are able to access genuine 100%-financed key-ready developments at discounted prices, and these are always highlighted on our website at www.cloudninespain.com
What paperwork do I need to produce to apply for a mortgage in Spain? Generally, the banks in Spain will require at least 3 months wageslips, P60 and 3 months bank statements. If self-employed, you will need to produce a set of your last accounts. Banks in Spain will also require a credit check. I have a developer s mortgage already in place. Is there any point in looking at alternatives? Most developers arrange finance when they acquire a project. You will still need to prove your income at the time of completion. Sometimes, these developers mortgages may contain adverse terms or conditions, so our advice is to shop around so that you have a few alternatives to consider. What do the banks charge for arrangement fees? All banks have arrangement fees, and these vary from lender to lender, and can be negotiable on occasion. What do the banks charge for valuation fees? The valuation fee varies from lender to lender, but 0.1% of the valuation is the average.
8 FINANCE & MORTGAGES SUMMARY BACKGROUND Immediately following the onslaught of the credit crunch in 2007, the banks here in Spain became very reluctant to lend money. From the heady days of the property boom in which Spanish banks would be happy to offer massive mortgages to anyone who could produce a P45 (even if it proved to be fake!), all of a sudden everyone seemed to realise what had been happening. Where once the banks would assume that the value of a property would rise by 20% per annum, now they couldn t be so sure. In fact the banks became so scared of exposing themselves to further bad debt that unless a buyer could present a squeaky-clean credit history and a 50% deposit, access to Spanish mortgages was strictly off-limits. CURRENT SITUATION Thankfully, the Spanish mortgage market has since eased, and most banks now have lending targets that they try to meet in each branch. However, whereas in the past the paperwork would often be overlooked, now buyers need to produce all the necessary documents such as payslips or company accounts, P60, bank statements, details of existing liabilities, and a credit check. Most Spanish banks are able to lend up to 60% - 70% of the valuation of a property to non-residents. They will be reluctant to go any higher than 70% because they simply don t want to over-expose themselves to the potential for further losses. If the valuation comes back to the bank as being higher than the purchase price, then the latter figure will normally be the one that the bank will use to base their lending. Gone are the days of gearing up the finance on the back of an inflated valuation I m afraid!
INTEREST-ONLY MORTGAGES For those buyers seeking an interest-only mortgage in Spain, these are now hard to find. Most bank personnel along the costas simply don t understand the notion of only paying the interest on a mortgage. Occasionally, they may offer a limited period of a carencia (which amounts to the same thing), but normally they will need a very good reason to do so, and usually this type of product would only be made available to residents. The banks flirted with interest-only products before the credit crunch kicked in, but overseas buyers will need to accept that their Spanish mortgage will be a very straight-forward capital and interest repayment product. MORTGAGE TERM Mortgages in Spain are normally available for up to 30 years with the maximum age for an applicant at completion of the mortgage term being 70. INTEREST RATES Interest rates have been historically low here in Spain for some time, and most mortgage products will attract an interest rate of between 1% and 1.5% above the 12 month Euribor.
FEES & TAXES Set-up fees and taxes for Spanish mortgages can be fairly hefty, and can add an additional 2%-3% of the purchase price of the property to the overall costs. 100% MORTGAGES Having said all of this, there are also opportunities to secure up to a 100% mortgage in Spain, but normally only when buying a property owned directly by a bank. For those who don t want to use any of their hard-earned cash, this can be ideal. BUT, please bear in mind that the properties in question have normally either been re-possessed by the bank or form part of a development that the bank has been financing. In either scenario, with the help of an experienced real estate agent, you may be able to find properties within the same (or neighbouring) developments at a lower price than you would be paying. The downside of course is that you would only be able to borrow up to 70% of the purchase price in the case of finding an alternative. Occasionally, we are able to access genuine 100%-financed key-ready developments at discounted prices, and these are always highlighted on our website at www.cloudninespain.com For further information or advice on buying a property in Spain, please contact us at info@cloudninespain.com or consult our website for updates. www.cloudninespain.com