Funding your Property. Once you have found the right property for you, how do you go about financing it, to make sure that you can actually buy it? Careful budgeting and knowing all of the extra costs can go a long way but, also having a full understanding of the ways in which you can raise the money, could open up new opportunities and make you realise that something that you once thought was out of your reach, has just become affordable.
There are various options available to you for raising finance, both in Spain and the UK although, the possibilities that are open to you would depend greatly on whether you are looking to buy a new or, a resale property and the payment terms stipulated within your purchase contract. We would recommend that you, first of all, talk to your bank or, financial advisor, to discuss your personal options and explore the possibilities.
New property vs resale property
Apart from the obvious difference a resale property is ready to move into now and a new property, could be anything up to around two years away. What are the differences, from a payment point of view? Understanding the payment structure opens and closes the doors to different finance options so, it’s important to talk to an expert about your financial situation, before committing to coming to Spain. That way, we know and you know, that you are only looking at properties that you can realistically purchase.
On a resale property, you would typically pay a holding deposit of 3,000 euros with a further 10% of the sales price payable within 7 working days (although there is some degree of room for negotiation between vendor and purchaser) with the remaining balance, plus the fees, payable upon completion. On a new property, again you would need to pay a holding deposit of 3000 euros and there will be staged payments of anything from 25% – 50% of the total sales price, depending on the builder and the project, with the balance, plus buying expenses, payable upon completion.
Contact us, today, for comprehensive payment information and specific terms for individual projects and resorts.
Financing in Spain
Taking out a Spanish mortgage has been a popular choice for many foreigners who have already bought in Spain. Some can be put off by the fact that the system works slightly differently but, this can be easily overcome by seeking professional advice from an overseas specialist.
The amount that you can borrow on a Spanish mortgage is dependent upon two main factors; the value of the property and your income. Valuations work differently in Spain from the UK and are much more detailed, using comparison values of properties in the local area to arrive at a value for your property.
As far as your income is concerned, banks in Spain take the view that your total credit outgoings should not exceed roughly a third of your total income. This can prove tricky for purchasers who have high credit outgoings. For example, if your joint monthly income after tax has been calculated at £2,400 (£40,000 Gross) and you have to pay £500 on your UK mortgage, your total allowance would be calculated as follows.
A third of £2,400 is £792 which, is the total amount you should pay in credit each month, according to the Spanish system. Subtract from this your UK mortgage payment and you are left with a maximum payment on your mortgage of £292 which, equates roughly to a mortgage of £60,000.
This system can prove to be quite frustrating for UK residents as, whilst they are in a financial position to comfortably take out a Spanish loan for a larger amount, they are restricted by the terms of what is considered an old fashioned system, by UK standards. However, talking to a reputable broker could secure you a larger loan than you thought possible, by going direct to the banks.
As is to be expected, Spanish banks will not lend on a property that is not yet built so, should you be buying a new property, you would only be able to raise a Spanish mortgage for the final payment which would usually be 50% of the sales price, plus your buying expenses. The money for the first 50% staged payment(s) would have to come from an alternative source… So what are your options?:
Financing in the UK
Equity release is the term used to describe the different ways in which you can benefit from the value of your existing home, without having to move out of it. The equity (money) you have in your property is its value, less any mortgage or, other charges against it and an equity release scheme can provide you with a cash lump sum or, a regular income. If you do have equity in your house, releasing it would provide the money that you need for those all important initial payments that will secure the property as yours.
The options in the UK are wide and varied and they could help you find a complete finance solution, by combining a UK mortgage with a Spanish mortgage in a cost effective way that could actually save you money. It might be suitable to take out a drawdown mortgage, if you buy a new property, where you are effectively given a credit facility and only pay interest on the money when you use it, i.e. for staged payments, rather than taking out one large lump sum.
Alternatively, it might be better for you to take a no cost, flexible mortgage with a low rate. The options are almost limitless which, gives everyone the opportunity to find the perfect finance solution for their own unique needs.
Find a complete finance solution by combining a UK mortgage with a Spanish mortgage
A bridging loan is a short term loan, often used in situations where there is a shortfall of cash and they are often the ideal solution for the purchase of property, be it in the UK or, overseas. In other words, it is a very short term mortgage, whereby the loan is secured against an existing property, in order to secure a second property.
They carry a higher interest rate and it is usually recommendable to repay it within around six months so, it may not be suitable for everyone but, the possibility is certainly well worth exploring. For those of you who are downsizing your UK property to buy in Spain, this offers a good short term solution, if you find yourself in the position of not having sold by the time your staged payment is due.