Raising Finance in Spain
Raising money in Spain can be a slow and expensive process. Do not apply to one bank, just because you have an account with them. Speak to a specialist broker used to dealing with non-resident borrowers.
They have two advantages:
- they know which banks are willing to lend at any given moment, what maximum percentage of the value they are prepared to lend and what interest rates they demand.
- they know which are the best branches of each bank through which to deal. If a branch is unaccustomed to lending to foreign buyers, the chances are they will be unfamiliar with the documentation you submit in support of your application which will likely be greatly delayed. The bank may also take a more conservative view.
Mortgage brokers also have one significant disadvantage - they charge.
A client of ours was recently asked to pay €795 to submit a pre-approval request plus 0.75% of the loan amount, with a minimum of €1.500.
Two examples to show how the cost works out:
1) Purchase price - €200.000, loan €140.000
Mortgage broker's costs - €795 + €1.500 = €2.295 or 1.15% of the purchase price
2) Purchase price - €600.000, loan €420.000
Mortgage broker's costs - €795 + €3.150 = €3.945 or 0.94% of the purchase price
Bear in mind that banks are increasingly insisting that all documents be in Spanish. This is particularly onerous for e.g. US taxpayers, who may be asked for the most recent three years tax returns. When a document runs to over 50 pages translating it is a nightmare! Brokers are generally much more aware of which entities insist on this.
Buying A Property With A Loan Outstanding
Eliminating The Loan
When signing to complete the purchase at the notary, your lawyer will have two cheques totalling the amount you still owe to the vendor which is typically 90% of the price as you will have paid 10% on signing the private contract. Prior to the signing he or she will have spoken to the lending institution to learn the exact figure outstanding on the day of signing. He will produce one cheque in this amount and another for the balance of the money you are paying.
A representative of the bank attends at the signing and signs the escritura confirming that the debt has been satisfied.
The second cheque is handed to the vendor when all parties have signed the escritura confirming transfer of title to the buyer.
Taking Over The Loan
The second possibility is for the buyer to assume the outstanding debt and pay the vendor the difference between the agreed price and the amount outstanding. This is known as subrogating the existing mortgage loan.
If the buyer needs to finance part of the purchase price, there may be advantages to surrogating an existing loan over applying for a new loan:
The buyer avoids paying stamp duty (IAJD) as this is only payable on the creation of a new mortgage. In Andalucia the rate is currently 1.2% of the value of the loan. However, in reality it is approximately 1.8% as it is levied not only on the principal borrowed but also added to this is every additional charge and commission that might be payable should the borrower not meet his commitments. Taking over a loan of €200.000 would save approximately €3.600 in IAJD.
The lending institution will not require a valuation of the property as this was done when the original loan was taken out. The savings will depend on the size and value of the property but typically this could be €500 - €1.000.
There will be no opening commission on taking over an existing loan. Banks in Spain charge anywhere from 0% to 1.5% of the loan value as opening commission.
Is The Process Automatic?
No. Before a loan can be surrogated the bank will need to be assured that the buyer is credit worthy and will require documentation to prove this.
Once the bank is satisfied, an offer of subrogation will be made to the buyer setting out the terms of the loan and any associated commissions.
Are There Disadvantages?
The one disadvantage is that the loan continues under the same conditions as previously agreed. If interest rates have gone down since the loan was originally agreed, it may not be advantageous to take it over. There may also be abusive clauses in the loan agreement. Your lawyer will need to study the conditions to inform you whether it would be favourable to assume the outstanding liability on the existing terms.
Must Banks Agree To Subrogate?
There is no obligation for banks to do so.