If you take out a mortgage on a Spanish property, it must be with a Spanish bank.  Yes, Barclays, Halifax and Abbey (in the form of their parent Banco Santander) all operate in Spain but you will be dealing with their local company and, as far as we are aware, offer no significant benefits over using a local bank.  That said, you may also want to consider equity release on your property in the UK to raise part or all of the finance required to purchase your property in Spain.

Interest rates in Spain are based on the Euribor  which is the European inter-bank interest rate and which tends to drift up and down as opposed to moving in fixed increments at specific times as the Bank of England rate does.  As in the UK, you should shop around for the best offers, especially as changing mortgages is a lot more expensive in Spain than it is back home as most carry redemption penalties and the legal and handling costs are a lot higher.  Another thing worth noting is that most banks will offer significantly lower rates to Residents as opposed to Non-Residents.

The financial markets in Spain have come on leaps and bounds over the last few years, however they are still not as advanced as they are in the UK and there is not quite such a large selection of mortgage options as you may be used to.

The vast majority of mortgages available are repayment trackers with the tracker rate varying just once a year based on the average of the Euribor over the preceding year.  Repayment terms are pretty flexible and we have seen everything from 5 years to 30 years and we believe that you can also get 40 year repayments at a push.

There are also a number of interest only mortgages available.  Again, these are normally annual tracker mortgages and are available up to a maximum of 10 years.  They then usually convert to standard repayment mortgages.

Fixed rate mortgages are pretty much non-existent.   The only ones that we have come across have been exclusively for employees of the bank that offered them.  So if you find one, please let us know.

Builders mortgages are also available for those who wish to finance their own construction, however the initial amount that you can borrow is normally based upon valuation of the plot and subsequent payments are strictly tied to construction stages and require architect sign off before funds are released.

Although we have come across one financial institution that was happy to lend up to 60% on the basis of a passport alone, most banks will ask for proof of income (bank statements and P60) and outgoings such as mortgage repayments or rent.  Some will also do a UK credit check.  They normally want to see a net income three times the amount of the mortgage repayments, however with the credit crunch they may ask for more.   For those that don’t want their financial affairs pried into, self certified mortgages are available.

Most banks will lend up to 70% of the valuation of the property (although we know of one that will go as high as 90% loan to value) on a standard repayment mortgage.  This percentage is lower for interest only, self certified and builders mortgages.

Please take note that bank valuations for mortgage purposes don’t necessarily bear much resemblance to market value.  Traditionally, the banks have overvalued apartments by the coast (although this is becoming less common) and undervalued inland properties, especially those that are classified as rural as opposed to urban.  We know of one bank that valued an apartment at Euros 260,000 that had just exchanged hands at Euros 183,000, and in the same week valued a cortijo at Euros 65,000 that had just had an offer accepted at  Euros 230,000.  Even when properties have been overvalued, the bank will never lend more than the value declared on the Title Deed, so when costs have been taken into account, it is virtually impossible to get a 100% mortgage.