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How can I finance my investment?There are two financial aspects to consider with this type of investment. First and foremost is the initial deposit which in the majority of cases is 30% of the overall purchase price plus costs. Many of our clients release equity from their UK property in order to fund the deposit and Investment Property Spain would be pleased to arrange this for you as we have considerable experience in this field. The potential profit from the off plan investment in the majority of cases will more than compensate for the marginal increase in interest paid on the equity release. Other options for funding the deposit include personal loans, pension lump sum, endowment or other investment surrender. If it is your intention to keep the property beyond legal completion then the remaining 70% (in the majority of cases) has to be financed once the build has been completed. Again IPS has considerable expertise in this field and in many cases you will have the option, if you require, of taking up a pre-arranged mortgage with the bank that is guaranteeing the building project, or we can assist in arranging a mortgage with any other high street Spanish bank. Interest rates in Spain are significantly less than in the UK and due to the fact that the Spanish interest rate is tied to the EUROBOR (interest rate agreed across all participating European countries set by the European Central Bank) the interest rate is also most likely to stay consistently low. The Spanish Mortgage market The mortgage market in Spain is very immature when compared with the UK and at this moment in time there are only a few options open to the non-resident marketplace, though as you would imagine with banks competing for the business, the products on offer are becoming more and more flexible and customer focused. The first major difference is that Spanish mortgages are secured on the property and not the customer and you can even pass on a mortgage to the new owner of a property when completing a resale. As a non resident the banks are interested in 2 factors:- Property valuation – At the time of the application the bank will send an assessor to value a property and they will base their report on the location, views, specification and recently locally achieved sale prices. This provides them with a factor and it is multiplied by the area. Using this valuation the bank will lend a proportion (LTV or loan to the value) and until recently all banks in Spain would lend up to 70% of the LTV regardless of purchase price. Recently it has become normal practice to obtain an 80% LTV mortgage as Spanish banks compete for business and in the future the market will become far more competitive bringing with it more choice for the investor. NB. The valuation should be considerably more than the purchase price at the time of completion due to the capital appreciation of the property and it should be possible to recoup the original deposit to reinvest in another project or development by taking the maximum available mortgage. Ability to repay - In no way will you be expected to jump through as many hoops as in the UK as the bank are more interested in the properties valuation, normally some payslips, a copy of the most recent P60 or for the self employed a letter from an accountant will suffice. The formula that they will use is simply to look at this UK documentation and they are happy to lend an amount whereby the corresponding monthly mortgage repayment does not exceed 35% of the net monthly income. Outstanding commitments are not usually taken into consideration. The mortgage interest rate in Spain is currently around the 3.25% mark and is most likely to stay consistently at this level due to it being governed by the Euribor (Euro Interbank Offered Rate). Footnote Index Page - IPS Guide Index page Page 10
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