Guide To Buying Country Properties
If you are looking to purchase a resale property and it happens to be a rural one (sometimes known as ‘Rustico’), then the mortgage valuations can sometimes prove difficult for a number of reasons and they are:
Sellers often insist that the price of their property is under-declared on the Escritura (Deed) and that part of the price is paid unofficially to avoid tax. The mortgage is often restricted by this reduction.
Mortgage valuations are based on comparison values taken from the Property Register, so will only reflect declared values. On average these are 20% below the full market price.
Mortgage valuations are essentially only “bricks & mortar” valuations – the value of any very large plots of land is not included.
Mortgage valuations are only based on the size of the property recorded in the property Register – very often owners have not registered the full size to avoid tax.
We can only obtain mortgages on properties that are registered for residential occupation. Again to avoid tax, rural properties were not always registered in this way.
To check the registration status, we need to see a “nota simple” this is an extract from the Property Registry which gives us the necessary information needed. This really needs to be considered as a priority before you make any commitment to buy the property and in particular, if it’s a rural or inland village property. You may find that the maximum mortgage obtainable will be around 60% loan to value.
Our status guideline is that you’re total mortgage and loan repayments, rent, and other commitments (including the new mortgage in Spain), should not exceed 45% of your net disposable income (That is the maximum; the norm is 30 – 35%.
There is no equivalent in Spain of “buy-to-let” mortgages in the UK. We cannot take potential future rental income into account. We 
may be able to take some of the rental income into account if the property has already been rented and there is proof of the income received and tax paid on it, or – if new – if the developers are renting other properties on the development and they can give us details of the rents being generated.
We then add this to your UK income and then apply the 45% affordability ratio. This will normally work out as being a “top-up” of between 10% and 20% of the price, and in any event your UK income always has to be the main source of income.
We can obtain a maximum term of 40 years up to age 80 on normal or ’status’ applications where income is available to show the lender. A mortgage for a purchase or even a re-mortgage (to release capital) from your property is now a fairly common theme in Spain. The maximum Loan to Value is 60%.
The fees our lenders charge for obtaining the mortgage are a valuation fee of around 0.15% of the property value and an application fee of 1 to 2%. In addition, there are other taxes and costs which you have to pay for registering the mortgage: stamp duty of around 2% is charged on a mortgage deed; and notary and registration fees of around 1% of the mortgage amount. These taxes and fees are in addition to the costs involved in buying the property.
A mortgage in Spain is a Notarial act and so cannot be changed. It is advisable to give the amount you want to borrow a great deal of thought as you will incur costs if you need to ask your mortgage Lender for additional funds or to change anything further down the line, and this includes extending the mortgage term. However, you can normally overpay your account by up to 10% per year in order to repay it sooner than the official term stated without a penalty.
When and if you decide to sell your property and the new buyer wants to take over your mortgage, then an early redemption fee will not be charged.
You may also be able to negotiate with your lender to waive the fee if you take out a new mortgage with them.
If your Spanish property is your main home, then you will need to prove that you have a guaranteed income, which may also be a pension or investment income. If you will be working in Spain, then you will need to supply your new contract and up to 6 months’ pay slips. If you are planning to set up a business or buying an existing one, then you will need to supply satisfactory accounts before a mortgage Lender could grant a mortgage.
If you are buying an off plan property then the property will have to have been completed and registered before the Lender will grant the mortgage because until then the property does not exist. The contract you sign with the builder at the start is not a purchase contract, but a contract committing you to buying the property at a future date and when the property has been completed. Any stage payments are an unsecured loan to the builder and it is important that your solicitor confirms that the builder has obtained a bank or insurance guarantee.
Remember that many builders do not do this. Mortgage Lenders will not normally finance the stage payments during the construction period. However, we can obtain up to 70% – 80% maximum once the property is completed and registered even if you have paid more than 20% in stage payments. It may be possible to arrange a re-mortgage of your UK property for the amount to cover the stage payments if you have insufficient savings.
It is important to be aware that a new property cannot be registered until the ‘Certificate for First Occupation’ has been issued in most cases. This can sometimes take 2 or 3 months and maybe longer after the property has been completed and the certificate issued by the local town hall. This needs to be chased so that you do not experience problems and delays with completion. This is the way to proceed but some less honest builders will try to make you pay before the certificate has been issued which is not possible if you need a mortgage.
If you are buying a country property then it must be registered as a “Vivienda” (residential dwelling) in order for it to be mortgageable. If the property is not registered a vivienda, but just agricultural land then legally the building does not exist and consequently cannot be mortgaged. This is why we ask to see a copy of the “Note Simple” (the extract from the Property Registry) You will need to obtain these documents whilst you are in Spain and forward them to me if possible. If a country property is not registered as a vivienda then you must consult your independent solicitor.
An enquiry does not commit you to anything at this stage and you do not have to wait until you have found the property before you send the enquiry. You can send it in advance so that I can consider issuing an “approval in principle” based on your current financial situation, before you commit yourself to a purchase.
Finally, a mortgage takes about 6 weeks from start to finish due to the time it takes to gather all the relevant documents. We look forward to hearing from you.
Please feel free to contact us without obligation
