Purchasing a property investment in Spain is a complex task and it requires a lot of analysis. In this article, we’ll feature the various kinds of mortgages in Spain, upfront & ongoing costs of investment property, taxes, and other fees that you should consider. Learn how you can strategize property investment in Spain & make an informed decision!
The benefits of variable interest rates include taking advantage of low rates and more Spanish mortgage options. The interest rate is adjusted with the Euro Interbank Offered Rate (Euribor), which has been in negative territory since 2015. The disadvantage is not knowing how much your monthly mortgage payments will be in the long term because interest rates can rise.
This type of mortgage is less risky since you will know exactly how much your monthly repayments are for the entire duration of the mortgage. You are also protected from future interest rate increases because the rate is fixed. This mortgage product became more popular with Spanish homebuyers in 2020 because it offers more security in uncertain markets. On the other hand, you will pay more to borrow the money when interest rates are low.
As the name suggests, this type of mortgage uses both a fixed and a variable rate. Most of these mortgages fix the rate for five years and then automatically convert it into a variable mortgage. Spanish lenders rarely offer this option.
Interest-only mortgages are less popular than other types of mortgages in Spain. Only residents can take out this type of mortgage, which allows you to pay off just the interest for the first term of the mortgage. While you can save money on your monthly repayments with an interest-only mortgage, you will often pay more in the long run, as it takes a lot longer to pay off the entire amount.
It’s very unusual for a Spanish bank to provide a loan in a currency other than euros. Although it’s a way of saving costs on the exchange rate, the Spanish bank might charge you more for the benefit of paying in your home currency.
If you are a Spanish resident over 65 and receive a pension, you can retire in Spain and apply for a Spanish mortgage to buy a home. One product that can benefit expats is a Lifetime Loan. It allows senior residents of Spain to release equity from their homes and convert it into cash. Through this, a mortgage against the property that doesn’t need to be repaid within the property owner’s lifetime.
Cajas or banks are often offered by Spanish mortgages and are sold directly by lenders or mortgage brokers. Here are some of the requirements that you will need:
1. Spanish tax ID number (for foreigners)
Primarily, you need to get a tax ID – also known as NIE (Número de Identificación de Extranjeros). This can be applied at your local Spanish consulate.
Some of the documents that you will need to get an NIE are:
2. Proof of employment or income
3. A pre-agreement with the seller
4. Proof that the property tax is paid to date
5. Details of your current debts and mortgages
6. Copies of all your existing property deeds (in Spain and other places)
7. Records of your current assets
8. Any prenuptial agreements (if applicable)
In addition to this, you can easily calculate how much the approximate monthly payment for your mortgage is using an online mortgage calculator.
Now that you have familiarized yourself with the kinds of mortgages, the next step is to learn more about the costs of investment! The average price of houses currently on the market is €250,000. The sale price of 80% of the properties is between €65,000 and € 1,050,000.
The average per m² in Spain is €1,322 / m² (price per square meter). Here is a summary breakdown of the entire costs that you will need to consider in order to invest in Spain:
Average Property Prices in Spain | |
---|---|
House | Prices |
4 Rooms | €320,000 |
5 Rooms | €430,000 |
Flats | Prices |
2 Bedrooms | €140,000 |
3 Bedrooms | €146,000 |
Source: Real Advisor Spain
1. Repayment mortgage is one of the ongoing costs that you have to consider. Usually in a series of monthly payments, this refers to paying both the capital that was lent and the interest accrued.
Here is a brief summary of mortgage costs in Spain:
0.25% in the first three years
0.15% in the first five years
2% in the first ten years
1.5% after ten years
2. Agency fees vary based on your property’s percentage price. Although this is an optional expense, the approximate cost is €300.
Let’s talk about the price comparisons for new & second-hand housing in Spain. It’s important to note that the exact figure will depend on the value of your preferred property & autonomous community.
For instance, if you are planning to purchase a property for €15,000 in Barcelona, here is the total expenses & taxes that you will need to consider:
EXPENSES | FEES | NEW HOUSING | SECOND-HAND HOUSING |
---|---|---|
Notary Fees | €750 | €750 |
Registration Fees | €365 | €365 |
Management Expenses | €300 | €300 |
VAT + IAJD | €17,250 | (not applicable) |
ITP | (not applicable) | €15,000 |
TOTAL: | €18,675 | €16,425 |
You can generate good cash flow from your residential investment property by either renting out long-term or short-term. On the other hand, some hosts who don’t want to purchase a property would opt for rental arbitrage in Spain.
For the long-term rental, you’ll rent out your property for a minimum of 12 months. There’s very little maintenance to do and you’ll need to visit the property on a quarterly basis to do inspections & other similar errands.
However, if you are after high return investments such as over 10% net rental income, running a short-term rental is what you need to consider. By doing short-term rental, you need to target somewhere between 10 – 25% net rental yield, and 20-50% cash return during the first year.
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