7 August 2018
The lending market in Spain
PROPERTY MARKETS IN MARBELLA AND THE BALEARICS ARE RECORDING HIGH LEVELS OF DEMAND FROM OVERSEAS BUYERS. MIRANDA JOHN, DIRECTOR OF INTERNATIONAL PROPERTY FINANCE AT SPF PRIVATE CLIENTS, LOOKS AT THE OPTIONS FOR THOSE WISHING TO BUY IN SPAIN.
Gloomy Brexit headlines may well be behind the surge in British buyers looking at Spain. For those buying in the €500,000 to €5m bracket, the low cost of finance, combined with the option of matching the currency of the loan and the property, are proving particularly attractive.
UK banks cannot take a charge so local Spanish banks are the only option. Affordability is the deciding factor, with lenders using net income for self-employed and employed borrowers. Most banks have ‘stress’ tests to ensure that borrowers can withstand currency fluctuations as well as rate rises. There are considerable differences in terms available depending on the type of property, its location and size of the loan.
The maximum loan-to-value is still 70 per cent but it is possible to fix for 10 years from just 2.4 per cent. Some lenders will let you repay 25 per cent of the outstanding balance each year without penalty, so protecting borrowers from rate hikes but also offering flexibility to repay early if required. Some lenders have also improved their customer service, resulting in far quicker completions. A client recently buying in Port Andratx had their offer accepted on the first day of the month before completing at the end of the same month.
For higher-value property of €2m-plus, private banks may be an alternative. They are relationship-driven so require assets to be pledged (usually €1m minimum). As lending decisions are based on the borrower’s overall financial position and future potential they can be more flexible, with even 100 per cent loans available. Typically, lending is over a shorter term – 5 or 10 years – but on interest only as standard, unlike high street banks, which only offer repayment terms. There are no age restrictions or requirements for life insurance, while more complex company ownership structures are usually acceptable.