Guide to buying property in Spain
The sun is shining on Spanish property again and British buyers are out in force, says Clare Nessling
Spain’s property market crumbled at the height of the financial crisis, sending property prices spiralling. But after years of the market being depressed, it’s picking up at last, with Knight Frank reporting a rise of 1.8 per cent in Spanish property prices from the fourth quarter of 2014 to the fourth quarter of 2015. And the International Monetary Fund has hailed the country for its remarkable economic rebound.
Combine this with the stronger pound, and you can see why British buyers are returning in their droves. With budgets stretching that bit further, a property in Spain could seem even more tempting, especially when you compare the cost with overheated parts of the UK market. Spain, in fact, has one of the most undervalued housing markets in the world, according to figures issued earlier this year by the Organisation for Economic Development
Top choice for investors
This might explain why Spain accounted for an impressive 38 per cent of our mortgage enquiries in the first quarter of 2016. Increasing levels of confidence among investors means that many people who have been putting their plans on hold are making a move in order to benefit from bargain prices and the fruits of a market recovery.
Spanish hot spots
The Costa Blanca is top choice, based on Spanish mortgage enquiries we’ve received over the last three years. As one of Europe’s most heavily visited areas, it has a resort to suit every taste. And it’s Alicante which has attracted the most attention from clients financing their purchases through Conti, with more than two thirds of Costa Blanca buyers choosing this location.
Hot on its heels, however, is the Costa del Sol, thanks to miles of magnificent beaches, championship golf courses and fantastic amenities which attract sun worshippers and sports enthusiasts to its leisurely lifestyle. The sun-drenched town of Marbella is the first choice destination.
The Balearic Islands are next on the list, with Ibiza standing out as the firm favourite. Traditionally known for its lively nightlife scene, it’s also home to quiet villages and peaceful sandy beaches. And the Canary Islands are also increasing in popularity, particularly Lanzarote which lies on the same line of latitude as parts of Florida and Mexico, making it an ideal all-year-round destination.
Mortgage availability is generally good, despite the recent doom and gloom, and financial institutions still have a healthy appetite for lending.
According to Spanish Property Insight, new mortgage lending rose by 17 per cent during March of this year, suggesting that banks still have a growing appetite to lend against Spanish real estate. While mortgage lending grows, sales will continue to grow and this is leading to renewed optimism among potential investors.
The maximum loan to value is still around 65 to 70 per cent, although smaller deposits are sometimes possible in areas where house prices are more resilient, such as the Balearics, the Canary Islands, Madrid and Barcelona.
Rates are from 2.5 per cent for a variable deal and 3.25 per cent for a 20 year fixed-rate deal. Interest-only deals are rare, so most mortgages are on a repayment basis, and most lenders will provide a range of fixed or variable interest rates.
Obtaining an ‘approval in principle’ is recommended. This costs nothing, but will tell you up front about how much you can borrow, and therefore what price range you can realistically consider before committing to anything. It will also prove to vendors that you’re serious about buying.
It’s also imperative to do your homework and to take professional advice before committing to anything, and you should always go through the same process that you would follow if you were buying a property in the UK. Don’t be tempted to cut corners.
Case study – ‘We’ve got the best of both worlds’
Phil Griffiths (49) and his wife Mandy (44), from Gloucester, have just completed the purchase of a three- bedroom, three-bathroom villa in Playa Blanca, located at the southern tip of Lanzarote. It comes with its own private pool and hot tub and is just a few minutes’ walk from the beach.
The couple fell in love with the area after spending holidays there and felt that it ticked all the boxes for them. “We’ve been to many other destinations including Greece and Egypt, but they get extremely hot,” says Phil. “Lanzarote, however, is not overly hot in the summer but stays warm enough in winter. It’s also within a very reasonable distance from the UK at just three hours by air, with very good value flights available from both Birmingham and Bristol, which is ideal for us.
“And the property itself is perfect. It’s located in a very quiet residential area but is only a five minute walk from the local restaurants, bars and supermarkets, so there’s no need to hire a car. We’ve got the best of both worlds. And it’s a stone’s throw from the beach, which is an added bonus.”
The original asking price was €395,000, which the couple managed to negotiate down to €375,000. They put down a large deposit and financed the remainder with a €150,000 mortgage fixed at just 2.59 per cent for the 20 year term, which they arranged through Conti. They intend to use the villa for holidays with their two children, as well as letting friends and family use it. And once the children have finished university, they will use it for semi-retirement, spending months at a time there.
“The whole mortgage process was very smooth, and everything just fell into place, “says Phil. “I have a background in financial services, so that probably helped, but as we had no experience of buying property overseas, we were very happy to hand over to the specialists to ensure that everything was done properly.”
When it comes to advice for others, Paul recommends enlisting the help of a reputable English-speaking lawyer who is located locally. “Our lawyer was extremely patient and explained absolutely everything to us. The fact that he was local meant that he knew the market inside out and when our estate agent told us that our lawyer was very picky, I knew that we were in safe hands.”
Top tips for buying in Spain
Obtain an Approval in Principle
This will confirm that you can obtain the necessary funds before signing any dotted line and prove to sellers that you’re a serious buyer.
Consider exchange rate fluctuations
We generally recommend that an overseas mortgage and the income used to service the mortgage repayments are in the same currency, thus avoiding exchange rate issues.
Do your own due diligence
If you’re buying a new-build property, check the developer’s track record. Obtain references from previous buyers and check comparable properties in the area.
Factor in additional costs
Bear in mind that bills don’t end at the asking price. Lawyer’s fees, local and national taxes, insurance, and so on, can often add at least a further 10 per cent to the cost of your acquisition.
Seek professional advice
Take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.
Clare Nessling is Director of Conti, the overseas mortgage specialist
Call 0800 970 0985 or visit www.mortgagesoverseas.com