Mortgage in Tenerife
Do your homework: you should analyse and compare a range of different products and services offered by different lending companies. If you have any doubts about the terms and conditions, ask the lender to clarify. You should also check that the lender is listed as authorised to operate in Spain with the Bank of Spain.
Look for the mortgage which is most appropriate for your capabilities and needs. There are a range of mortgages on offer and you should pay special attention to the interest rate and repayment period, fees for setting up the mortgage as well as early repayment and cancellation fees.
If you cannot keep up the mortgage repayments, the Spanish bank could repossess your property in Spain. If the value of the property is less than the total debt outstanding (you are in negative equity), the bank may pursue your homeland assets to recover the mortgage shortfall using a European Enforcement Order.
Make sure you fully understand the mortgage agreement you sign. If you have any doubts check with the branch during the 10 working-day period after the binding offer has been provided. If for any reason you cannot keep up the mortgage repayments, you should speak to your bank immediately (before defaulting on repayments) to discuss the options available.
Further information on mortgages in Spain is available from the Spanish Mortgage Association. A mortgage is a loan from a bank or building society for the purpose of purchasing a property. You are required to pay back the loan with interest over an agreed period of time (the mortgage term). The loan is secured against the property so if you are unable to repay it your lender can sell the property in order to recoup its money.
Mortgages in Tenerife
Residents and non-residents can apply for a mortgage or hipoteca in Spanish. It is always better to shop around as interest rates vary dramatically from bank to bank.
At the moment interest rates are very low so some would consider a fixed rate option. Euribor (12 month) is the interest rate most commonly used to calculate mortgage payments in Spain. It is used for both variable and fixed rate mortgages in Spain. There is another option that does not exist in England. This mortgage carries a variable interest rate but you fix the amount you want to pay each month and while this does not change with interest rates what does change is the period of time for repayment. This way you could initially state a ten year period and if the interest rate is lower when you took the mortgage out your mortgage could be paid within seven or eight years. Of course if the rate is not favourable the reverse could happen. Whatever type of mortgage you choose it is very important to get good, legal advice. This is a long term financial commitment and as with all financial matters it is better to be safe and sure now rather than sorry later.
Spanish Mortgage Procedure
Every lender requests slightly different documents from applicants, but the following is a generic list which forms the basis of most banks’ requirements. As the first stage of the mortgage procedure, we will ask you to send us these documents for initial assessment (copies are usually sufficient).
- Last 3 months pay slips (or equivalent)
- Last 3 months bank statements showing regular income
- Last P60/ tax return
- Passport copy
Financial assessment by broker
Your qualification will, again, vary according to the lender. In most cases, 35-50% of your net monthly income will be taken into account and your lending budget calculated accordingly.
We will look at your financial profile and match it to the Spanish mortgages we know you will qualify for.
We will then look at your priorities (e.g. long interest only period, low interest rate, no early repayment penalty etc.) and isolate the best products for you. We will usually select a few options and send your application to these lenders, requesting further paperwork from you if necessary.
Approval in principle
We will then liaise with the lender on your behalf to negotiate the best conditions and to avoid delays. Some banks will send the case to a centralised risk department for approval, some will provide it from the branch.
Most Spanish mortgage lenders (there are some exceptions) will then provide what is called an “approval in principle”. This means that your financial status is acceptable to them and that you qualify for the mortgage amount requested on the basis of your income and expenditure.
All Spanish mortgages are offered subject to a recent bank valuation. Every bank has a panel of acceptable valuation companies and, in most cases, one will be selected by the bank to perform a survey of the property.
The valuation is calculated according to the square metres of the property by comparison to recent sales prices of similar properties in the area.
The bank will lend you a certain percentage of the valuation figure regardless of the mortgage you requested, even if you qualify for a larger loan on the basis of your income.
Official (“binding”) offer
This is a signed document issued by the lender stating the conditions and amount of loan they are prepared to give you. This is “binding”, so the bank cannot technically change these conditions after they have been agreed (within a reasonable time frame of course).
This offer will be sent to you and your legal representative and, once you have accepted it, your solicitor will make arrangements for the completion and signing of the mortgage.
All Spanish mortgages are registered to the property and so have to be notarised and registered, much like a property purchase.
If you are taking out a purchase mortgage, this will be done at the same notary at the same time of the property purchase completion.
For Spanish re-mortgages and equity release mortgages, a notary date will have to be made.
Fees and charges
When organising a mortgage you must also bear in mind the additional fees and charges that will also be associated with arranging the loan:
Valuation fee is the amount charged to carry out a valuation of the property on behalf of the lender. Valuations should not be confused with homebuyer’s reports or surveys as these are much more detailed and are carried out on behalf of the borrower rather than the lender.
Booking fee and arrangement fee these are up-front fees charged at the outset of the mortgage. The booking fee is paid to reserve funds on a mortgage product and is often non-refundable. The arrangement fee is typically charged on completion and can often be added to the overall mortgage sum.Legal fees are payable to the solicitor acting on behalf of the borrower and the lender. The cost is greater for purchase than remortgage.
Early repayment charges only become payable if an applicant makes an overpayment or pays off the mortgage early.
If you intend to mortgage a second hand property, be aware that you should face costs as follows:
- Valuation of the property.
- Request of extract (Nota Simple) issued by the Spanish Property Registry, which shows the latest recorded details of any charges on the property.
- Bank mortgage opening fee: it shall be paid when signing the deed. This fee varies depending on the lending bank you deal with. Theoretically this commission serves to cover the costs the bank has incurred for studying the concession of the loan to the borrower. Some banks do not collect this fee.
- Stamp duty, (Impuesto de Actos Jurídicos Documentados) 0.5%: It must be paid when a notarial document is signed.
- Notary and Registry: These fees vary depending on the guaranteed capital of the mortgage.
- Insurance: The banks normally require the borrower to contract, at least, a fire insurance to protect its interest until the loan is repaid. The bank will try you to contract the insurance to the company they have an agreement with, it is your right to contract the insurance with the company you wish. The insurance fee must be paid at the moment of the deed signature.
Glossary of financial terms Referring to mortgages in Tenerife
Repayment of the initial loan amount by means of a scheme of instalments, including a repayment of capital borrowed and an amount for the interest charged. According to the type of mortgage, these instalments can be fixed for the whole life of the loan or vary with interest rate fluctuation.
Cancelacion anticipada (Early Repayment or Early Redemption)
This means the total or partial repayment of the borrowed amount before maturity. In partial repayments, you can choose to reduce the monthly payment and keep the agreed final maturity date, or keep the same amount of instalment but shorten the term.
Cancelacion registral (Register Discharge)
Once the mortgage has been repaid, the encumbrance has to be released from the Land Register. This involves costs of Notary, Register and Solicitor.
Carga (Encumbrance or Registered Charge)
Legal charges regarding a determined property entered in the Land Register, i.e. mortgages, usufructs etc. Before signing the purchase contract, ensure that there’s no encumbrance related to that property in the Land Register.
Cedula de habitabilidad (Occupancy Certificate)
This document certifies that the home meets minimum occupancy conditions. You will need to produce this document when contracting utilities such as water, electricity and gas.
Comision de apertura (Opening Fee or Loan Arrangement Fee)
This is a percentage of the loan discounted from the total amount when it is paid into your account, for services rendered in granting and processing the mortgage.
Comision de cancelacion anticipada (Early Repayment Fee)
This fee, indicated in the mortgage contract as a percentage of the repaid amount, compensates the lender for the loss of interest payments expected for the period between the early redemption and the agreed maturity.
This is a set value throughout the term of the mortgage which is usually expressed in percentages or fractions and which is added to the value of the reference rate to calculate the interest rate for each revision for variable rate capital repayment mortgages.
Escritura publica de compraventa (Deed of Sale)
This document legalises the purchase and shall be signed by both contracting parties and by the notary. The purchaser obtains a first copy of the deed once all taxes have been paid and the corresponding inscription in the Property Register has been done.
European Inter-Bank Offered Rate, an index based on the interest rate for deposits in Euros at 12 months that is published by the European Central Bank and commonly used as reference rate for variable rate mortgages.
The professional adviser who looks after dealings with the Register and the payment of taxes to the Tax Authority.
A legal charge entered in the Property Register when a real estate property is assigned to be collateral for a mortgage loan.
Impuesto actos juridicos documentados, AJD (Stamp Tax)
This tax is payable on sales transaction subject to VAT (a percentage on the deed amount) and mortgage loans (a rate on total coverage of the mortgage).
Impuesto sobre el valor anadido, IVA (Value Added Tax, VAT)
Sales made directly by a developer (newly built homes) are subject to VAT. The current standard rate is 8% on the sales value in case of private use and 16% in case of commercial use. In the case of Canary Islands instead of VAT the tax applicable is IGIC (Impuesto General Indirecto Canario).
Impuesto sobre transmisiones patrimoniales, ITP (Transfer Tax)
This tax is payable instead of the VAT when the property is not newly built. In this case, the standard rate of 8% is independent of the assigned use of the property, but there are regional differences.
Indice de referencia (Reference Rate)
This base rate is, on variable rate mortgages, used to calculate the new interest rate when it is reset. Pay attention to the fact that the reference rate, together with the margin, determines the amount of the future instalments.
Interes ordinario (Ordinary Interest)
That is the nominal interest rate. It has to be specified in the contract whether the rate is fixed or variable throughout all or part of the loan.
Indice de Referencia de Prestamos Hipotecarios = Similar to the EURIBOR, this rate is used as reference for variable rate mortgages and published by the Banco de Espana. It represents an average rate for mortgages offered by all Spanish financial entities.
The Notary acts as the public official when signing the public deeds, such as the sales or mortgage loan agreement. He is obliged to ensure that current legislation is fulfilled and to defend the interests of the parties, particularly the borrower’s interests.
Periodicidad de las revisiones (Resetting Frequency)
This means the frequency of interest rate resettings on variable rate mortgages, which are usually carried out once or twice a year. Plazo de amortizacion (Term or Repayment Period) The period of time during which the loan capital and the corresponding interest have to be repaid.
Prestamo hipotecario (Mortgage Loan)
Usually known simply as Hipoteca (mortgage), this is a loan granted by a lender and backed by a property.
Registro de la propiedad (Land Register and Land Registry)
The Land Register contains all acts, contracts or legal charges referring to a property, such as ownership or encumbrances. Registro de la propiedad is also the local department responsible for maintaining the Land Register, i.e. the Land Registry.
Subrogacion (Remortgaging with another lender)
If you have already a mortgage, but another lender offers you better terms and conditions for your mortgage, you can remortgage, i.e. transfer the mortgage and all the corresponding rights to this new lender.
Subrogacion de deudor (Remortgage of the debtor)
This is a substitution of the debtors mortgage. That is to say, when the person who buys a mortgaged property takes responsibility for all debts and encumbrances that the seller had towards the financial institution that conceeded the mortgage.
Tasa anual equivalente, TAE (Annual Percentage Rate, APR)
This represents the effective cost of a loan calculated as if it were paid as one single repayment each year. It has to be indicated on any loan offer to make it easy to compare different loan offers with different characteristics (interest rate, commissions, reference rates, margins, etc.). All offers must indicate the TAE value. It will help you compare with other products and make the best and most profitable decision.
An independent surveyor company carries out the valuation of the property in order to determine the current value of the home within the property market and to specify the maximum amount that can be financed. The valuation is valid for six months after the date of issue. It is important to ask for a copy of the valuation. It is a service you pay for and you have the right to demand a copy.
Verificacion registral (Land Register Check)
That is the examination of the Land Register records of a property, verifying the legal owner and the existence of charges, such as mortgages, encumbrances, etc. The document where all this is reflected and that must be presented to the bank is the “Nota simple de cargas”.