Equity release for Spanish property
A UK fund via a Private Bank has recently launched a new lending product for the Spanish Market.
The product has been set up to Fill a gap in the market not covered by Spanish Banks and with more flexibility than some of the Private Banking options already available in the market.
No Spanish Bank can set up a mortgage in Spain on an existing property and allow for funds to be taken out except in very limited circumstances so for improvements to the property itself or to help with buying another property but only in Spain.
Interest only loan in Spain
Loans with Spanish lenders are always repayment.
Private Banks will offer mortgages in Spain on an interest only basis normally with some capital reduction each year but will only release funds to invest with them. They have their place as they help with IHT planning and wealth tax but do not provide flexibility to utilize funds for other purposes.
The new product does require as all Private Banks do that money is under management with them for you to access their facility but the level is considerably lower than with other providers and up to 70% can then be released from the property in Spain.
Minimum value of property must be € 2.5 million.
Product terms and conditions
Up to 60% loan to value is available on an interest only basis with a 5 to 10 year term or up to 70% on a repayment. Basis over 15 years.
To access the product the borrower must have a private banking commitment to the lender of a minimum value of € 1m. This can be taken from the funds released or can be an existing portfolio moved to them.
General returns depending on risk profile are between 3 to 7%.
All lending requires proof of income and the client will need to show ability to support loan with a criteria of 3 to 3.5 times gross income.
What can released funds be used for
Funds can be used to purchase other assets in Spain or elsewhere and other reasons like investment into a business. Each application in terms of viability and use of funds is looked at on a case by case basis.
Interest rates linked to 3 month Euribor
Interest rates are 2.5% above 3 month Euribor but a 1% discount is given for the funds under management so net rate 1.5%. The 3 month Euribor will never be considered to have dropped below 0%.
With the new product lending is unregulated so does fall under the new Spanish Mortgage regulation of 2019.
This means that whilst the loan is secured in the normal manner the lender is not obliged to and does not cover any of the costs associated with the loan.
The borrower will be required to cover Mortgage deed tax AJD which is around 1.8% of borrowing, the Banks legal and due diligence fees surrounding securitisation along with an arrangement fee and valuation fees.
Total arrangement fees including intermediary fees will be between 3 and 4% of lending.
Other fees including land registry, notary and valuation fees are on top of this and total costs of acquiring the lending in Spain will be between 8% to 10% of the loan.
Whilst the set up costs are high they are no higher than bridging finance in Spain and rates are considerably lower with a guaranteed term unlike bridging which is normally maximum 24 months.
Loan to values at 70% are higher than bridging finance and overall the lender does not require the same level of upfront commitment as others in the market.
The product is for release of equity only it cannot cover new purchases at this point although of course it does allow for equity release to purchase another property.
The loan can be dealt with in a company name or personal names depending on how property is held and all nationalities are considered.