The Mallorca property market is a popular one, and some need a mortgage to get the keys to their dream home. We reached out to some local experts to find out what property buyers should know about mortgages in Mallorca. If you are looking for a second home that you would like to rent out, don’t forget to read our latest post about Mallorca’s rental licenses.
Written in collaboration with Spectrum International Mortgages and Mortgage Direct.
Maybe you’ve already found your dream second home on a property sales page but the asking price exceeds the budget you originally had in mind? Don’t worry, there are plenty of options to get a mortgage – either locally or abroad.
At Charles Marlow, we always recommend our buyers to find a local bank to secure easy access and start off with a good connection to the local community. But bank dealings are undoubtedly a personal business, with many options, and some prefer to hunt for a certain kind of deal, some are keen on getting the best price, some on the lowest possible rate. Therefore, we wanted to speak to some mortgage experts to make it clear what the options are and how you should go about finding the right mortgage for your needs.
To help us understand more about mortgages in the Balearic, we spoke to two of the absolute specialists on the island: Christian Severinsen, managing partner in Spectrum International Mortgages, and Katherine Walkerdine, founding partner of Mortgage Direct.
They both provided us with a list of 10 things that are good to know about mortgages in Mallorca. We will begin with Katherine’s top 10 as a quick, sublime list of facts. That will be followed by Christian’s list which also includes some great advice and a number of cunning tips.
The maximum mortgage for someone not living in Spain (paying Spanish taxes) would be 70% of the property value. Otherwise the maximum is 80%. Aside from the deposit, you should also allow around 12-15% of the price for the fees and taxes associated with buying costs.
In terms of how much you can borrow, the banks calculate around 1/3 of your net monthly income and that has to be enough to cover your existing debts including any rent you might pay plus the new Spanish mortgage payment.
You can achieve fixed rates from 2% for the whole term or from Euribor + 1.35% depending on your profile. The 12 monthly Euribor is currently -0.166. Mortgage rates are very low making purchasing in Mallorca very affordable.
The lending bank doesn’t necessarily have to be a Spanish bank. There are many banks outside of Spain lending on properties purchased in Mallorca.
It is advisable to use a broker as their involvement makes a huge difference to the ease and speed of the process and ensures that the best possible conditions are secured for their customers.
Buy-to-let mortgages don’t exist, so the future potential rental income is not considered. However, some banks are willing to lend if the property is to be rented out.
– Katherine Walkerdine, Mortgage Direct
When taking out a mortgage, the banks do their own due diligence with the legalities and insist a valuation is carried out from a company approved by the Bank of Spain. All the necessary checks will be done so you have the peace of mind knowing that the property will be correctly registered at the land registry.
The mortgage debt is secured against the Spanish property, meaning that if there’s a problem in the future and the mortgage premiums are defaulted on, the lending bank is less likely to pursue assets held in the client’s country of residence.
Buy-to-let mortgages don’t exist, so the future potential rental income is not considered. However, some banks are willing to lend if the property is to be rented out and the banks will apply the affordability stress tests as explained in point 2 above.
Mortgage products without life cover exist!
If you happen to be a cash buyer, by borrowing an amount equal to your available cash, you could buy a property of double the value – maybe in a more desirable location or with better facilities. Or why not consider buying two similarly priced properties – one for personal use and the other as a rental investment – with a 50% mortgage on each?
The process can easily take longer than expected, so don’t wait to the last minute with applying. If there are no unpredicted delays, the mortgage process will normally take around four weeks from the time the bank or the mortgage broker get the full file. It’s hard to be more concrete than that as there are a lot of parties involved. Often, part of the delay is caused just by trying to get all the parties to be at the notary at the same time!
When you start making contact to banks or a third party who works on your behalf, make sure that you provide a full file. The banks will not send it to their risk department before they have a full file.
Make sure that you have time to do a market comparison or hire a mortgage broker like Spectrum International Mortgages to do this for you. There can be a huge difference between the first and the best offer.
The rate is not the only factor to consider when looking at a mortgage. Terms and conditions can easily be just as important as a superficial good rate. If in doubt, speak to a professional to ensure you get the best deal.
Taxes and costs involved with buying a property and setting up a mortgage in Mallorca is roughly 12%. This covers property tax (ITP), mortgage tax (AJD), notary, registry and the ‘gestoria’ of the bank. It does not cover lawyer fees (typically 1.5%, potential insurances and the valuation.
“The rate is not the only factor to consider when looking at a mortgage.
Terms and conditions can easily be just as important as a superficial good rate.
And there can be a huge difference between the first and the best offer.”
– Christian Severinsen, Spectrum International Mortgages
Non-residents, meaning people who do not pay taxes in Spain, will get a maximum of 70% of the purchase price as a mortgage. This means that you need 30% + 12% (taxes) = 42% of the purchase price in cash to complete the operation.
Some homes in Mallorca are built on urban land – and some aren’t. This may be important, as some banks don’t accept mortgages for some rustic properties. Other properties might have a cellar or a pool which isn’t accounted for in the papers – you may still get a mortgage, but in that case, they won’t include these parts in the valuation.
Once you have signed at the notary and your Spanish bank account goes into overdraft, don’t panic! It normally takes a day or two before the mortgage is inserted into your account and in that period of time, your account is bound to have some serious red numbers on it until the mortgage is released.
Once the mortgage is set up, it has to be paid. If you have funds coming into Spain from abroad, e.g. the UK, make sure that you speak to a currency provider to handle your monthly payments. Achieving the best rate on every currency exchange you do will save you money on each mortgage payment.
If you feel that the whole process seems daunting, then ask for assistance! This may very well end up saving you money, time and a lot of frustrations.
In sum, it can take time – and the possibilities are many. There aren’t really any rules when it comes to mortgages, as the property, the valuation, the rates, and not least your needs as a buyer, all count.
If you should still have any questions about mortgages in Mallorca, don’t hesitate to contact Christian or Katherine on their profile pages. Both Spectrum International Mortgages and Mortgage Direct have years of experience.
If you not looking for a mortgage broker, but still have questions with regards to buying, selling or renting a property in Mallorca, don’t hesitate to contact Charles Marlow’s office in Deia on telephone, +34 971 636 427, or email, firstname.lastname@example.org.