Guide to buying Spanish property

Why and how to buy property in Spain? What foreigners need to know before purchasing Spanish real estate.

Property market in Spain

People buy Spanish real estate both for private use and investment. Profitability of the resort real estate is around 5% per year. Foreigners bought 16% of all property sold in Spain in 2017. And more than 14% of those foreigners were British.
Spanish real estate market map

Can foreigners buy properties in Spain?

In order to buy a house, you will need to get NIE — a fiscal identification number, that is the main document of Spanish non-residents.

NIE is the main document for foreigners in Spain. Any foreigner is allowed to buy Spanish real estate, you do not need to be a resident to do it.
The Spanish government supports foreign investment in Spanish real estate by giving a "golden visa" for those, who spend over €500,000 for the total purchase of one or more properties. This type of investor's visa allows you to live in a country (but doesn't allow you to work) and is popular among retired foreigners and holiday home owners.

How will Brexit impact buyers of the Spanish properties?

Unfortunately, nobody knows for sure what Brexit is going to change and how it will affect the market. According to common opinion, the British Pound will continue to fall, so it will be more expensive for Brits to buy Spanish property.

Also, some are afraid of the UK State Pension rights for those retiring abroad, which will no longer be proof of your income. It will be necessary to show sufficient funds or to invest €500.000 to get the residence. It is likely that Great Britain will conclude the bilateral agreement that will cover health care and resolve other appearing issues. For now, it is hard to believe that Spain will treat the UK, the main real estate investor, like other non-EU states.

Considering mortgages, it is believed that banks will not considerably raise their rates after Brexit. However, it is obvious that British people will no longer enjoy the same rates as Spanish citizens. But mostly the hard times for mortgages will be connected to the risks with giving loans to those who are payed in fluctuating currency.

Nevertheless, the British will return to buy more houses in Spain after a year of break after voting for Brexit. The citizens of the United Kingdom are the main foreign investors in the Spanish real estate market, accounting for more than 14% of the total operations of foreigners.

According to the data of the General Council of Notaries, investors from the United Kingdom carried out a total of 7,246 acquisitions in the second half of last year, which represented a growth of 7.8% in relation to the same period of the previous year.

Why do foreigners purchase Spanish properties?

  • Owning a holiday home, that can be also used by all family members, as a place for a joint vacation.
  • Investment goals and renting, which gives an additional income during retirement.
  • It supports a stable economy, political environment and development of the real estate market in Spain, which guarantees good resale potential. Property prices are lower, compared to the standards before the economic crisis, and have started to grow again since 2014.
  • Cheaper airfares in Europe. Spain has great infrastructure, such as, international airports, fast trains, and the best roads in the EU.
  • Affordable prices for high-quality houses. Real estate prices are also lower compared to mortgage costs.
  • Perfect services at a bargain price. The cost of living is much lower than average in the EU.
  • Variety of scenic locations, for example, 47 UNESCO World Heritage Sites, unique nature and warm seas, 320 days of sun per year, and the second longest coastline in Europe, behind Italy. Enjoy the picturesque beaches of Spain!
Who buys property in Spain: age, values, lifestyle

Finding your dream property

There are several questions you should ask yourself before diving into the Spanish real estate market, some of which are;
1) "Why do I need a second home here?"
- For a clear understanding of this question, you must decide the criteria by which you are going to choose a desired house or apartment on the Mediterranean coast. Remember, a house with a garden requires constant maintenance and additional costs. So, if you are planning to spend only a couple of weeks per year in Spain, the best choice would be an apartment in a gated residence, both for your budget and security.
3) "Where is it located?"
- Location influences convenience during your stay, whether that's on a vacation, renting, or living at the property. Proximity to the sea and walking distance from areas, like, supermarkets, restaurants, and pharmacies, is important when the property accommodates for tourists. If you are planning to move to the Spanish coast, then the priority may not be the beach, but a calm residential area with a playground, public garden, bus stops, hospital, sports club and school etc. But do not worry, if the school is in a different area, there are always school buses.
2) "How much does it cost?"
- You must thoroughly evaluate your needs and funds before making a purchase. Do not forget about additional costs and taxes when buying and maintaining a property. Identifying whether you will need a loan to assist with payments, is also crucial. There are also additional expenses, such as, mortgage processing, interest payments and preparation of necessary documents.
4) "What to choose?"
- You need to know about the specifics of Spanish apartments that makes the demand higher for properties located on the upper and lower floors.
Top floor - It often has a large terrace and a private solarium with a panoramic view, which can be used as a recreational area with a dining place and barbecue area.
Ground floor - It often has independent access or even a spacious courtyard with a garden and parking.
Therefore, the cost of such properties is 20-30% higher than the rest of the apartments in the same building.
The common types of Spanish Properties are, townhouses, bungalows (same as ground floor apartments), and villas. Keep in mind the higher cost of maintenance of properties with a plot and/or pool.
property value in Spain

Legal advice

You will also need a team of specialists that can help you to successfully perform all the necessary legal criteria, they include;

Spanish notaries
The person who is in power to certify Spanish documents ensuring they fulfil certain legal criteria. He/she will turn your private sale contract into the public deed of sale.

Estate agent

When choosing an agent, you should look after those agents or companies that specialize in the local market. This allows the seller to be sure that when assessing his property, not only the average market price will be taken into account, but also many other factors: infrastructure of the area, immediate plans of municipal authorities that may affect the value of the property, and so on.

Attorney

The most important thing a lawyer (abogado, asesor) will do is make sure that everything is alright with the property you have chosen. That is why it is vital to find an independent specialist. The lawyer will check the owner's documentation and their right to sell the property. They will ensure there are no debts attached and identify the timely payment of community fees and annual property taxes by the current owner. As well as, other important information from the Land registry. Complete list of English-speaking lawyers for British people in Spain you can find here.

Translator

You will need a translation of all contracts in order to fully understand all details of your contract. Also, the translation of some documents from your language into Spanish will be required, for example, at the bank. Authorised English-speaking translators in Spain.

Currency specialist

It is better to take advantage of the currency specialist in case you are going to transfer a large amount of money. They usually have a considerably better exchange rate compared to the Spanish banks. They are regulated by the FCA, so it is a safe deal. We recommend you conclude the "forward contract", so you know in advance the sum of money you will pay after the purchase. We recommend you find this specialist in your home country.

Gestors

A Gestor is a consultant on general issues related to paperwork, including the sale and purchase of real estate. One of their responsibilities include filing the documents. They specialize in various ways of obtaining official documentation or permits and understand the clients needs, even if they do not speak Spanish. For example, they can help resolve issues related to energy supply, registration at local authorities, paying taxes, or opening an account in a Spanish bank. Gestor's fees are lower than lawyer fees.

What to do before the deal

1
Get the NIE
- Apply for NIE (Numero de identificacion de extranjeros), which is a personal tax identification number in Spain, required for foreigners who intend to buy properties, cars, pay taxes and even sign an Internet contract or perform other legal actions.

It is better to apply for the NIE as soon as you start searching properties. You can obtain it in Spain or via Spanish consulate in the country of residence.

It may take from one hour up to 2 months for non-EU residents, so bare that in mind.
2
Spanish bank account
- Open an account in Spanish bank. When you know the sum of money you are going to transfer from your bank account to the new Spanish account, and when, it is a wise decision to warn the bank about it, so the transfer will not be blocked due to the large amount of money.
3
Insurance
You will need the insurance of property and of life in case you buy the real estate for mortgage. It is the official request of the bank, and this document can be also made at the same bank for your convenience.

How to avoid scams and pitfalls

Previously, it was easy to go for unscrupulous sellers and developers, but this problem is almost gone. However, we strongly recommend you ensure you are not making the costly mistake.

First, check the documents of the professionals you are going to work with, especially lawyers and estate agents.
Check with the Land Registry for criteria such as:

  • The availability of planning permission;
  • Any debts attached to the property;
  • Documents of "Comunidad de Propietarios" (the community of owners);
  • The property matches its description and the quality of built satisfies you
In case you buy new-built or off-plan property, you must:

  • Ensure that the chosen developer is officially registered; you can do it here;
  • The land registry, or "Registro de la propriedad";
  • Identify availability of planning permission;
  • Never sign a contract unless you fully understand every part of it;
  • Include a provision in the contract that states you will receive a refund if the house is not built.
The buying process - two main stages
The entire purchase process is divided into two main stages - preliminary contract and the completion deed (deed of sale).

After you have found a property, a reservation agreement is concluded, where the purchase and sale price is fixed. Then contrato de arras is signed in 10 days.

Stage 1: Preliminary Contracts

New properties (off-plan)

"Contrato de Reserva" or "Contrato de Arras" is a type of optional agreement. You will be required to pay a holding fee of €3000-15000. Then you can apply for a mortgage, if needed. Decide whether it is best to do this in your country or in Spain.

Existing properties

"Contrato de Arras" is a type of optional agreement. You will be required to pay a holding fee of €3000-15000.

You will need to sign the "Contrato Privado de Compraventa" (preliminary contract) right away if buying from the secondary market. This contract expresses your intent to buy a certain property and removes it from the market. Deposit in this case is up to 10%. This sum will be held in escrow for a couple of months, so you will have some time to check up the chosen property. During this time, a purchase contract will be drawn up and legal checks will be carried out. It is important not to sign it without including provisions according to which you can exit this contract.

Stage 2: The Deed of Sale

Go to your bank and make the cheque out to the name of the property owner or the building company (in case of mortgage) before going to the notary.

This is the last stage when all parties meet at the notary. Your lawyer, mortgage provider (if needed) and the seller or their legal representative must be present. Before signing you should make sure that you have a clear understanding of all the costs and have sufficient funds to pay all taxes and applicable fees. Do not forget to register your property rights in the Land Registry.

Important note! In order not to travel to Spain for signing all the deeds, you may sign the power of attorney at your home country at the Notary.

Mortgages

BBVA Mortgage

A variable rate BBVA mortgage includes the following factors:

  • No commitment fees
  • Variable rate from Euribor +0.89 to Euribor+1.89 (depending on compliance with all the conditions or their part: using a credit card, home insurance, transfer of salary to the account, etc.
  • Variable APR from 1.732%
  • First year: from 1.89% NIR
  • Sum less than or equal to 80% of the property's appraised value
  • Up to a 30-year term

Amid the primary year of the loan the financing cost will be fixed at 1.89% NIR. For whatever is left of the mortgage term, the financing cost will start from Euribor +0.89%. The relevant differential relies upon the level of financing, on BBVA's examination of the activity and on the contracted products.

A fixed rate BBVA mortgage includes the following:

  • No commitment fees
  • Fixed rate from 1.85% NIR during first 6 months
  • APR of 2.823%
The fixed-rate mortgage interest rate depends on the chosen term (up to 15 years NIR is 1.85%, between 26-30 years NIR is 2.45%)

Kutxabank Mortgage Simulation

Let's do some mortgage simulation with this bank.
Let's say you are a 40-year old UK citizen and your monthly income is €3000-5000.
You've saved €100.000 and you plan to buy a second-hand property that costs €250.000.
So, you need to grab €150.000. You decide to pay for 20 years.

Which mortgage options are available for you?
Mortage in Spain: Variable vs Fixed-rate Moratage. Monthly payment comparison

Additional costs and taxes

The main taxes when buying from the primary market:

Value Added Tax (IVT) — 10%
Stamp Duty (AJD, IAJD)
— 0.5-1.5%
When buying a house directly from the developer, you have to pay 2 taxes. First, it is necessary to pay VAT (IVT in Spanish) that is 10% of the price of the property. Secondly, only new real estate buyers pay stamp duty, the amount of which depends on the region and varies from 0.5% to 1.5%.
The main taxes when buying from the secondary market:

Real Estate Transfer Tax (ITP)
— 6-10%
The amount of tax is set at the regional level and varies from 6 to 10%. For example, in Madrid the it is 6%, on the Canary Islands - 6.5%, in Andalusia, Valencia, Catalonia and the Balearic Islands it is up to 10%. ITP is paid to the local tax authorities. In Madrid and Andalusia payment can be made via the Internet.
Property Registry Filing (Nota Simple) — €9
A report from the registry contains information about the current owner of the property, type of property and a brief description (area in m2, number of rooms, etc.). In addition, it shows the existing debts and restrictions (for example, unpaid mortgages). The statement is requested in the property register in person (ready the next day), or via the Internet (ready in 1-2 days).
Notary services — 0.03-0.45%

The cost of notary services depends on the price of purchased housing. For example, services for real estate in the price range between €60101.61 and €1552503.03 will be 0.1%. For cheaper properties, the rates are higher, and for more expensive ones — lower.
Registration fees — 0.02-0.175%

The registration fee is paid in favor of the state and also depends on the price of the property. For the above range, it is 0.075%.

Expenses when buying a house with a mortgage

Mortgage stamp duty (AJD, IAJD) — 0.1-2%

Charged when you make a mortgage loan agreement in the form of a certain percentage of the loan amount, in accordance with the established amount in the region.
Property valuation — €200-500 for an average property.
An independent assessment allows the bank to determine whether the price of house is too high (in this case, the bank will not be able to sell it profitably at market value if problems arise with the borrower). The more expensive the property is, the more expensive its valuation.
Registration and notary fees
The cost of notary and registration of mortgage in the property register have a direct correlation with the loan amount.
Insurance — €300-350
Property insurance is obligatory, it is often issued directly at the bank, that acts as an intermediary between its client and the insurer. Life insurance is also required in most cases.

After purchase: getting Spanish visa

Until the UK quits the EU, British citizens do not need a visa to travel and live in Spain. However, if you are going to stay there for more than 3 months, you must register in the Office for Foreigners which is usually in a Town Hall in your place of residence. You will receive the registration certificate and members of your family will get a family card of citizen of the Union. More information you can find here. Once you are registered in the Town Hall, you can take advantage of the Spanish health care system.

Conclusion: why use an estate agent - cons and pros

Buying property abroad can be a tricky process. There are many pitfalls only professionals are aware of. Trying to do everything by yourself is worth it only if you are familiar with the whole process and know the region well.

Agent's services are usually paid by sellers or developers. A commission of 5-10% is already included in the price. However, there are some exceptions. Historically, in Valencia and Malaga, a commission of around 3% for secondary market properties is excluded from the indicated price. Of course, the agency should warn you about this.

Keep in mind that you are able to choose your own lawyer, bank and other specialists — you are not forced to use services suggested by the estate agency.

Estate agents often provide detailed information about the region, and urbanization of the area you are considering buying a house in. Most of the agents are bilingual and are used to dealing with foreign clients. Yet unscrupulous estate agents do exist, so be wary of anyone who asks for prepayments or proposes cutting corners.
Choose only trusted agents, just like us! It is our pleasure
to assist you in every step of the buying process and find the best property you want.
Spanish properties sold to the foreigners graph on 2Q 2018

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