A recent article in the Telegraph Retirees snap up cut price property in Spain written by Nicole Blackmore outlined the increase in UK residents between the ages of 40 and 60 years looking to buy in Spain.
The resurgence of activity in Spain is due to much lower prices and strong exchange rates.
Funding of a Spanish Home
In the article it was also pointed out that buyers are releasing equity from properties in the UK to buy and that borrowing in Spain could be more expensive.
So will a foreign buyer pay higher mortgage rates
Whilst it is correct that Foreigners will pay higher margins above Euribor than Spanish residents this is only the case where the Spanish resident is buying a main residence. For Spanish Nationals buying a second home the margins above Euribor on their mortgage will reflect the level of margins charged to foreign buyers.
UK residents and other EU nationals borrowing in Spain are normally buying a second residence. Just like the UK second home market the rates you can achieve when buying a holiday or investment property will be higher than those paid for your main home. Buy to let mortgages in the UK are traditionally higher than mortgages for your home. The reason for this is that risk to the lender is greater. It is well evidenced by past experience that the likelihood of a mortgagee defaulting is much less when they are borrowing to buy their home rather than borrowing for another purpose.
As a Non Spanish nationals how can you access resident rates
If as a buyer in Spain you put yourself into the Spanish tax system; have shown some continuity within the country; and are buying a main residence you will, whatever your nationality have the opportunity to access resident rates.
The differential between resident rates and nonresident mortgage rates in Spain is not in the current market as wide as we have seen in the past. Whilst for residents headline rates are being mooted at 1.25% above Euribor the reality is to gain that rate you will probably only be borrowing 50% to 60%, you will be having your pay being paid into the Bank account of your lender and you will have many other linked products like employment protection, life cover, buildings and contents insurance and a pension plan tied up with the lender to achieve the best possible terms.
Are Spanish Mortgage rates improving
Mortgage rates for non residents in Spain are beginning to fall as the Banks open the doors again. In the last couple of months we have seen one bank launch a 2% above Euribor product for foreigners buying property in excess of € 400k, the same bank just yesterday removed its minimum floor rate and dropped margins above Euribor for property below 400k from 3.3% to 3%.
Other banks are hovering around 3.25% to 3.5% above Euribor with linked products. Euribor for May 2014 is 0.604%.
Is there a right funding answer for all buyers in Spain
Each buyer should consider their own individual situation when assessing where the funding for a Spanish home comes from. For some releasing equity in the UK will be the best route and for others a Spanish Mortgage with the competitive terms and rates may be the right option. One area to consider carefully when assessing which is right for you is that exchange rates fluctuate. When you sell if currency rates have moved against you, you may find the final amount you get back in sterling is not necessarily enough to clear the loan taken in the UK, particularly if this has been taken on an interest only basis.
