This guide is for those who want to know the characteristics and conditions of mortgages for foreigners in Spain.
Foreign buyers often prefer to take out a loan in their home country. However, the Spanish mortgage offer can be rewarding, both for foreigners residing in Spain and those who do not have residence in our country.
In fact, as you can see in the following section, the number of foreigners who opt for this alternative is increasing.
Not surprisingly, foreign demand for housing is at historic highs, representing 13.1% of total sales in 2017.
Foreigners contract a large number of mortgages in Spain
According to figures from the Real Estate Yearbook of the College of Registrars for 2017, 7% of mortgages taken out in Spain for the purchase of a property were signed by foreign citizens.
It translates into 21,000 mortgage loans, with an average sume of 128,452 euros. However, there are notable differences depending on the region where the property is based. In the Balearic Islands, the average loan is 244,148 euros, while in Andalusia is reduced to 141,699 euros.
Countries of origin
In addition, the autonomous communities with the highest predominance of mortgages for foreigners contracted were Catalonia (with 20.2% of the total), Valencian Community (19.2%), Andalusia (17.4%) and the Community of Madrid (14.4%).
However, the vast majority occur in the regions with the highest tourist activity. That is the Canary Islands, the Balearic Islands, the Valencian Community, Murcia, Andalusia, and Catalonia.
Countries of origin
Regarding the countries of origin, we find notable diversity since half of the mortgages correspond to Romanian (11.6%), British (9.3%), Chinese (8.4%), Italian (5.8%), French (4.6%), Moroccan (4.2%), and German (4%) citizens.
With less incidence, there is also significant numbers for the mortgages formalized by Russian, Norwegian, Danish, Dutch, and Swedish nationals. These are - along with the Germans - the ones who contract loans for higher amounts in a range between 234,102 euros on the part of the Germans to 181,429 euros on the part of the Dutch.
Does your nationality influence the conditions of the mortgage
As a general rule, the conditions for contracting the mortgage are influenced by, among other factors, the economic profile of the applicant, as well as the characteristics of the property and the environment where it is based.
Also, nationality can influence the conditions of the mortgage loan contract. It is because the credit profile of citizens from certain countries may be considered more risky than that of citizens from another.
In short, the country of origin of the mortgage applicant can be an indication that positively or negatively affects the risk associated with it.
As we will see in the following section, this mainly affects foreigners who do not reside in Spain habitually.
On the other hand, the banking sector is subject to heavy regulatory pressure about money laundering. Therefore it is obliged to apply especially rigorous measures to ensure that the investments and operations of its foreign clients comply with the law.
Mortgages for foreign residents and non-residents in Spain
One of the elements that influences the conditions of the mortgage loan granted to a foreigner is whether or not they are a habitual resident in Spain.
Mortgages for foreign residents in Spain are ordinary mortgages, like those granted to Spanish citizens. On the other hand, mortgages for non-resident foreigners are subject to more demanding conditions.
To begin with, not all financial institutions approve mortgages for non-resident foreigners in Spain. In other cases, loans are subject to certain limitations and conditions that mainly affect the maximum amount financed and the interest rate established in the contract.
The main reasons for this restriction are related to the difficulty of dealing with possible default by these customers. That is, in the case of non-payment, it is complicated to interpose legal actions, especially in the case of non-EU foreign nationals.
Thefore, it is difficult to proceed with the seizure of assets abroad. Because of this, the main available guarantee will be the mortgage property itself.
Requirements to obtain tax residency
For an individual to be considered a tax resident in Spain, they must meet at least one of these conditions:
Stay in the country for more than 183 days throughout the calendar year, although random absences will be mentioned in the final count.
The main center or base of your economic activities or interests must be in Spain, directly or indirectly.
Your legally unseparated spouse and dependent minor children must reside in Spain.
Conditions of mortgage loans for foreigners in Spain
The usual conditions of mortgages for foreigners in Spain are similar to those of Spanish citizens, except for what has been mentionted, as well as some details that affect documentation.
· Firstly, it is necessary to open a current account with a bank headquartered in Spain and in which you want to take out the mortgage.
· In this regard, mortgages are offered at a variable rate (based on the Euribor index plus a differential) and at a fixed rate. The latter option ensures that the monthly installments remain constant throughout the life of the mortgage. It is worth mentioning that the interest rates set for non-residents in Spain are usually higher than those offered to residents.
· The indebtedness for the applicant cannot exceed 30%-35% of their regular income. That is the resulting amount of adding the future mortgage installment, and the installments of other existing debts cannot exceed this limit.
· On the other hand, the maximum amortization periods range between 20 and 30 years–exceptionally–as long as the applicant's age does not exceed 70 years before the mortgage expires. That said, the maximum terms for non-residents rarely exceed 20 years.
· The contribution of real estate guarantees and personal guarantees favors financing conditions. However, we have already indicated that properties abroad are not assets that banks in Spain value considerably due to their inaccessibility. For the same reason, personal guarantees are to be provided by residents in Spain.
· Finally, taking out a mortgage entails series of complementary expenses, such as notary fees, registration fees, management fees, and taxes. All this usually represents between 8% and 13% of the property price.
In addition to these general conditions, we recommend analyzing the following aspects more specifically.
Credit limits of mortgages
Mortgages in Spain have a credit limit for acquirying the habitual residence equivalent to 80% of the sale price or property appraisal value. In the case of a second residence –such as a summer house–the amount is usually reduced to 60%.
In short, the applicant must provide their own capital of between 20% and 40% of the property value.
Mortgages for foreign residents in Spain are governed by this same limit, unless the bank considers that the client's credit profile represents too high a risk and reduces the available financing according to the circumstances.
For their part, non-resident foreigners will have to assume the limits of financing for a non-habitual property, given that their non-resident status makes it impossible for the property being considered otherwise.
In addition, due to the risks we already described, mortgages granted to non-resident foreigners may have their maximum limit reduced by up to 50%, if the bank deems it appropriate.
Documentation required for mortgage processing
The documentation required by financial institutions for the viability study and subsequent approval of a mortgage is similar for both foreign and national clients.
The main difference is in the specific type of document that proves the economic information required by the bank that is used to evaluate the credit profile and solvency of the client.
It happens because specific documentation differs for every country, with the important thing being the data contained therein.
That said, we proceed to provide you with a list of the usual documents required when applying for mortgages for foreigners:
· Copy of the NIE or passport and, where appropriate, the certificate proving non-residence in Spain.
· Tax residency certificate.
· Employment contract and last three pay stubs received in the country where you reside.
· The fiscal year tax declaration from the previous year.
· Bank statement from the account where your salary is deposited, with the movements of the last 12 months.
· Three previous receipts of your outstanding debts, such as loans or credit cards.
· Record of your current assets, such as property titles or bank accounts.
· Simple land registry note of the property to be purchased.
· Purchase agreement of the property or, failing that, the down payment agreement, which is a pre-agreement with the seller of the property.
Credit risk report for non-residents
In the specific case of non-residents, financial institutions require a credit risk report in order to verify the activity and economic solvency in the country where they reside and work.
This report comes from entities such as Experian in the United Kingdom, SCHUFA in Germany, Transunion in the United States or Transunion CRIF in Russia.
Likewise, proof of the contributed capital is mandatory in order to prevent money laundering operations.
Translation of documentation
Necessarily, all documentation submitted from a non-Spanish speaking country needs translation by a sworn translator at the client expense.
However, due to the rise of mortgages for foreign customers, entities have their own translators to dispense with the sworn translation.
Presentation of documentation
The usual practice is for the client to be required to personally provide the original documents to the bank and sign the contract before a notary.
However, there may be cases where the financial institution accepts the postal or scanned submission of such documentation and the appearance of a legally authorized representative with notarized power of attorney. Obviously, this is more frequent in the case of mortgages for non-resident foreigners.
Regardless of the ability to submit documentation electronically, we recommend you to always go to the bank in person. In this way, you can receive information and advice from the personal manager on everything related to the mortgage granting procedure, the amortization schedule, and the rest of the conditions established in the contract.
We trust this information will be handy when contracting a mortgage for foreigners in Spain.