As interest rates in Spanish banks are currently more attractive than in Poland, many customers are considering taking out a mortgage to purchase a property.
If we have to take out a loan to purchase a property due to a lack of own funds – it is important to calculate well the timing of the signing of the various contracts in the property acquisition process. If we indicate the need for loan financing in the reservation agreement, we avoid the stress of not yet having a mortgage granted and already being bound by deadlines to sign the contracts. Of course, this also does not apply to those who have their own funds for the purchase.
Can a Pole apply for a loan in Spain?
In the case of non-resident clients who have documents to authenticate their income, Spanish banks grant loans without major problems. As a non-resident, you can apply for a loan for 50% – 60% of the value of the property. The bank will grant a loan for a given percentage of the value of the property – but remember that taxes, transaction fees and legal services must be added on top. Depending on whether it is primary or secondary market, these will be an additional cost – in the range of 8% to 13%.
An independent valuer assesses the property in question and in most cases this is lower than its actual market value. However, this should not be interpreted as overpaying for the property in question – this is the strategy adopted by the banks. They offer loans for around 50-60% of the property’s value and, in fact, often reduce the value of the property in order to have security for a higher percentage and thus reduce their risk. Either way, in both cases – even if the valuer values the property higher than the market price – the bank accepts the lower of the two.
We therefore recommend adopting a calculation of obtaining a loan of 50% of the value of the property to avoid disappointment and, if the amount granted were higher, it would be a pleasant surprise.
What are the term and conditions of the loan?
The maximum loan term is 20 years, which also depends on the age of the borrower. The loan terms currently offered by the banks (analysis based on the current offer from Banco Santander and Banco Sabadell) are as follows:
- 50-60% of the valuation of the property,
- 20 years – loan repayment period,
- 3.60% interest rate in the first year of the loan,
- Euribor +1.9% interest rate from the second year of repayment (non-eurozone customers are offered variable rate loans from the second year of repayment),
- 1% to 1.5% mortgage opening commission,
- 0.25% in the first 3 years (0% thereafter) commission for early partial or full repayment.
The bank will also oblige us to take out a life insurance policy, as well as home insurance, through its insurance agency, but these are generally very attractive market rates.
Is it possible to negotiate the opening amount of the loan?
The commission on opening a loan can be reduced if we take advantage of various offers from the bank – for example, by having two credit cards of which we are required to spend a minimum amount per month or year, or by opening a savings account with the bank. Each bank offers a range of additional services and by taking advantage of these, we are able to reduce the commission amount by a few points.
What documents do we need to submit to the bank when applying for a loan?
Depending on the client’s personal and professional situation, different documents are required, but we will always need them:
- tax returns from the last 2 years (PIT),
- each borrower’s BIK (credit information bureau) statement,
- bank statements for the last 6 months (where you will see regular receipts and instalment loan repayments, if any),
- an extract from CEIDG for a business activity or the last 3 payslips for an employment contract,
- in the case of employment, information on the date of establishment or length of service is required,
- a bank statement or other proof of the funds in the account/loan (or other financial product) that will be used to purchase the property as an equity contribution,
- “note simple”, i.e. the registration details of the property the client is buying,
- a reservation agreement for the property being purchased,
- a completed declaration of assets,
- a completed application for funding,
- the applicant’s NIE number(I.E. – Número de Identidad de Extranjero), the so-called Alien Identification Number.
Depending on the bank, we may be asked to present the indicated documents translated by a sworn translator. These are already very rare cases, as local banks have been extensively lending to Poles for the last two years and have adapted special sheets to read the individual items of tax returns.
How does the process work and how long does it take?
For comfort, it is better to adopt a range between 6 and 8 weeks. Once the bank has the customer’s complete documentation, it needs about a week to do the analysis and give it the result of the automatic scoring. If the result is positive, it still has to be approved by an analyst or branch manager (depends on the mortgage amount), which can take another few days.
The bank then has the property valued (this is the borrower’s cost), which takes another week, and then – if there are no additional complications during the process – we have to add 2-4 weeks to prepare the loan agreement.
Having already been granted a loan, you will receive a so-called FEIN (European Standard Information Sheet), which constitutes a binding offer for a mortgage loan. In this document, the bank provides detailed information on the terms and costs of the mortgage. This means that during the term, the bank will not be able to change even one comma in the characteristics of the mortgage detailed in the file. The Bank of Spain specifies that banks must provide this document free of charge and at least 10 days before signing the purchase contract, so that the future borrower can “make a comparison and an informed decision” before finally signing the mortgage.
A mortgage FEIN is a binding offer, but only to the bank. According to the Real Estate Loans Act, a FEIN is “a binding offer to the entity during the agreed period until the signing of the contract, which must be at least ten days”. The FEIN has been in place since June 2019, when the new mortgage law came into force, requiring the bank to provide transparent information to customers. If you sign a FEIN (certificate of receipt) and later decide not to take out this mortgage, the bank cannot penalise or charge you for this.
This means that, as a step prior to the signing of the mortgage contract (and therefore the purchase), the bank and the client must report to the notary (the client can come in person or be represented by their lawyer) 10 days in advance of the date of signing the final deed of purchase – in order to formalise the deed of acceptance of the terms of the mortgage. Once the 10-day deadline has passed, we can proceed with the signing of the purchase deed and mortgage.
On the final day of purchase, there is a simultaneous signing of two deeds in the presence of a notary. First, the deed of purchase and sale of the property is drawn up and then the mortgage is established on the property. The lending bank hands over a bank cheque during the deed, covering the agreed amount of the mortgage on the property in question.
After the notarial deed and settlement of the taxes due, the registration of the ownership right and the mortgage charge in the relevant real estate register will take place. The borrower will be obliged to repay the loan with the agreed interest, where the collateral in case of non-settlement will be the purchased property.
In the event that the seller has a mortgage on the property, the mortgage payment will take place simultaneously on the same day before a notary. The buyer’s bank will issue one cheque for the mortgage repayment and, if there is still a difference remaining, a second cheque is issued to the seller for the remaining amount.
All payments in a buy-sell transaction are made by ‘certified bank cheques’ – which literally means a guarantee that the given amount for which the cheque has been issued is ‘frozen’ in the account until the cheque in question is cashed.
Transfers only apply to the payment of the first reservation contract, where we pay in most cases 10 per cent of the price of the property, or for other minor settlements of bills – if so decided by the lawyers representing both parties.
Banks charge a commission for issuing a certified/guaranteed cheque and, depending on the bank, this is approximately 0.4% – 0.5% of the amount. We recommend negotiating with the bank to keep the commission as low as possible. If we will be conducting the payment for the property through a law firm, we can always ask for help and rely on their long-standing cooperation with the bank in question to reduce the commission to the minimum possible.
If you are thinking of buying a property in Andalusia, see what tax changes the Autonomy authorities there have taken to encourage investment. You can find a list and description of the changes at this link.
