Now is a great time to buy property and understand how to get a Spanish mortgage. The economy is booming, house prices are rising and effective interest rates are low. It’s also a great country to live in.
The mortgage market is currently experiencing one of its greatest moments. In the aftermath of the health crisis, home sales have rocketed to their best figures in a decade. But what does the near future hold for the sector? And will there be a turnaround in mortgages and mortgage rates in 2022?
Mortgage Market Trends in 2022
Housing demand is expected to continue increasing this year. This trend will largely favor the recovery of the sector.
The savings generated by the pandemic are one of the main reasons for the boom in the mortgage market. This has encouraged fierce competition among banks. It has led to better offers and lower rates.
Perhaps now is the best time for those who are considering buying a house in 2022.
The annual rate for a mortgage loan was 1.56 percentage points in November 2021, according to the Bank of Spain. That is a historically low number.
Another point that will mark the real estate market this year is the drop in interest rates on variable mortgages. In their eagerness to offer the best deals, many banks are changing their strategy.
More than 67% of new mortgages are fixed-rate loans. This shows a clear change in trend, as variable rates were previously the norm. Fixed interest rates keep instalments the same and protect you from possible rate rises, which explains the growth.
Thus, in a scenario of inflation, and despite the fact that the Euribor is still at a minimum, experts predict that the fixed-rate mortgages will continue to dominate in the coming months, even accounting for 70% of loans.
Although the European Central Bank (ECB) has made it clear that it will not raise its key interest rates in the course of 2022, inflationary pressures could lead it to consider a change in the roadmap. This has happened with the Federal Reserve (Fed) and the Bank of England.
The EURIBOR index is the benchmark for variable mortgages. It is currently at historical lows of around -0.5% and will get higher.
Here’s how to get a Spanish Mortgage and the legal considerations.
Firstly, you need to consider mortgage rates:
In Spain, there are two main types of mortgage rates. These are similar to many other countries:
- Fixed-rate loan: the interest rate is set at the start of the mortgage. The periodic amount and interest will not change during the term of the mortgage.
- Variable interest mortgage: The interest rate goes up or down according to current interest rate levels. The monthly mortgage payment amount and interest payment will go up or down with these rate changes depending on the index set chosen, like the EURIBOR.
- The initial interest will be initially low. The banks normally use this tool to make the mortgage offer more attractive for earlier monthly payments. But later on, this interest may convert into an excessively high interest so be careful.
The Annual Percentage Rate (TAE) and Nominal Interest Rate (TIN)
Some important concepts to understand are the TIN and the TAE when evaluating a different offer from different banks.
The Nominal Interest Rate corresponds to the interest rate that the bank establishes when lending an amount of money. However, it doesn’t take into account the rest of the costs of a mortgage operation.
The Annual Percentage Rate is an interest rate that includes all the costs of a financial product and is established as a percentage per year.
In other words, the TAE includes the TIN, bank commissions, and some of the costs of setting up the mortgage, such as the opening, the notary’s office, the appraisal, etc.
In conclusion, this second modality is the best indicator of how much a mortgage is going to cost and is the factor that should be used when comparing different banking products. Some mortgages have low TIN, but then the associated costs are higher than in others.
The main differences between the two types of mortgages are as follows:
- Costs. The TAE will always be higher than the TIN, but also more reliable, as it includes all the costs of a banking operation, as explained above.
- How they are calculated. The TIN only registers the interest rate that the bank applies to a loan, this amount has to be added to other types of expenses, which will give the TAE percentage.
- Terms. While the TIN is only expressed in annual interest rate terms, the TAE can be expressed in other shorter (even daily) formats. This means that when comparing products from different banks using the TIN, it should be done in the appropriate time frame.
What are the main steps in the mortgage process?
First of all, the bank will ask about your profile and finances. You must provide pay slips, your employment contract, information about investments, and other recurrent income you may have. This will also include your credit score and that will be a factor in the life of the loan. They will also ask for your latest tax returns and information about any other debts or mortgages you may have.
Once the client’s economic profile is approved in relation to the property’s value, the bank will order the appraisal of the property to be mortgaged.
The bank will consider the lower purchase value and the appraised value when applying the financing percentage. Problems can arise if there is a significant discrepancy between the two.
Note that for non-tax residents in Spain, conditions may vary slightly and banks may ask for a greater economic capacity. Most banks will usually finance up to a maximum of 70% of the property’s value. They may ask for a higher annual income than for a Spanish tax resident.
The Spanish mortgage process is as follows:
- Approval of the customer’s economic profile by the bank’s risk department
- Valuation of the property and issuance of the corresponding report.
- Approval of the economic conditions and making of the binding offer by the bank (FEIN and FIAE). The signing of these documents at the bank.
- There must be 10 calendar days between the signing at the bank and the signing at the notary’s office. During this period the mortgage holder must sign an “Act of Transparency”. Here, the Notary will certify that the holder has understood all the conditions of the mortgage. They also confirm that the buyer has all the legally required information.
- Once concluded, the mortgage holder can go to the notary’s office to sign the mortgage loan deed. You should sign this just before the deed of sale of the property.
- You must register the property with the Property Registry. This must include the names of the mortgage owners.
- You must also register the mortgage with the Property Registry. A non-registered mortgage is an ordinary loan term and therefore does not constitute a preferential charge on the property.
In the last few years, we have witnessed reductions in the real interest rates offered in the Spanish market so it is an attractive time to secure a mortgage.
Many people also found that their mortgage rates were too high, and decided to modify the terms, either negotiating lower rates with the banks or changing the lending bank.
Here are the costs to remember when understanding how to get a Spanish Mortgage:
- 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: 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 terms of the loan to the borrower. Some banks do not collect this fee.
- Stamp duty (Impuesto de Actos Jurídicos Documentados). This is 0.5%-1,5% of the property price. However, it can vary depending on the amount and the location.
- Notary and Registry: These fees vary depending on the guaranteed capital of the mortgage. Following a recent change in legislation, the notary and registration costs linked to the mortgage loan deed will be borne by the bank and not by the mortgage holder.
- Insurance: The banks normally require the borrower to take a home loan insurance plan as part of the mortgage terms.
It is important to analyze the terms and the financing conditions offered in the binding offer and the terms, with your Spanish lawyers. A real estate expert will help you understand and mitigate the closing costs and your purchasing power.
They will even help you take inflation into account for the bigger picture, the latter of which is crucial to acknowledge given global inflation expectations and whether the property is still attractive once adjusted for inflation. All of these factors are important when understanding how to get a Spanish mortgage.
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