Buying a home in Mallorca – our insiders’ guide

 

At Charles Marlow, we’re not just here to help you when it comes to finding your island dream home. We offer expert advice however and whenever you need to to make buying a home in Mallorca as smooth as possible. 

Since Charles Marlow opened our doors on the island, we’ve helped many buyers acquire homes.

In our experience, it’s best to understand what the buying process is, what costs you’ll need to factor into your calculations and, should you want one, the ins and outs of acquiring a mortgage in Mallorca well before you start searching for a home on the island. 

We suggest you engage a lawyer before you begin your search. We’ve found that clients who are aware of all the potential costs and have a buying structure in place can move more swiftly, with greater confidence to secure better deals.

If you wish, we’re happy to introduce you to lawyers and mortgage brokers.

Using a currency exchange broker is the best way to avoid high bank charges. Understanding the currency exchange process and having a plan in place well before you exchange is vital. We would be delighted to introduce you to our preferred currency exchange experts.

 

 

Buying a home in Mallorca in 10 simple steps

1. If you’re not already a Spanish resident, you must obtain an NIE tax number, the tax identification number for foreigners in Spain. To obtain an NIE, you’ll need to provide a certified copy of your ID, usually your passport. A local lawyer can help you obtain an NIE. If you don’t already have a local lawyer, we’re happy to introduce you to one.
2. When you’ve agreed a price with the seller, your lawyer will liaise with the seller’s representative to draw up an ‘option contract’ to secure the property with a 10% deposit.
3. You may wish to include other conditions within the contract such as a previously agreed inventory of furniture included with the sale, an agreed completion date or time frame, a mortgage valuation and so on.
4. Your lawyer does all the necessary searches to make sure the seller actually owns the property, that there are no debts against it and to check its legal status.
5. A public deed is prepared that gives all details of the transaction as long as all the necessary checks such as an urbanistic and legal inspection, title deed inspection and surveys are satisfactory,
6. Remember that if you pull out at this stage, you may not get back your deposit. The vendor is normally obliged to pay a penalty and refund your deposit if they back out.
7. If you’re taking out a mortgage, we can recommend excellent mortgage brokers.
8. Your lawyer will advise you on taxes.
9. You’re expected to be present with the official notary when the final contracts are exchanged. If this isn’t possible, you can give your lawyer power of attorney to act for you.
10. The deed is signed in front of the Spanish Notary and the transaction goes on record in the land registry under your name.

 

 

 

Buying costs

Buying a home in Mallorca, you’re expected to pay various fees that usually add around 10-13% to the purchase price. You’ll also be expected to pay taxes, apart from land tax and selling agent’s fees. Lawyers’ fees are usually between 1% and 1.5% of the sale price. 

The official purchase tax is normally based on the declared value of the property, as determined by the local authority. 

If the property is a new build, the purchase tax includes IVA at 10% and stamp duty, currently 1.2% of the purchase price.

 

Should it be a re-sale, you pay a transfer tax (ITV):

• Up to €400,000 taxed at 8%
• €400,000 – €600,000 taxed at 9%
• €600,000 – €1,000,000 taxed at 10%
• €1,000,000 – €2,000,000 taxed at 13%

Notary and land registry fees vary but are roughly 0.7% of the sale price.

Plusvalía or land value tax is the tax applied to the value of the land a property occupies when a property is sold, inherited, transferred or donated. In most cases, plusvalía is paid by the seller but you should confirm this is the case when agreeing a price with the seller.

 

 

Mortgages in Mallorca

Mortgage rates in Mallorca are still low, making purchasing a home on the island very affordable. To make sure we offer you the best possible advice about mortgages in Mallorca, we reached out to Howard Steel of Mortgage Direct who kindly provided his top tip guide to obtaining a mortgage in Mallorca.

 

Howard’s Mallorca mortgage top tips

 

1. Give yourself time. If there are no unexpected delays, the mortgage process through to completion will normally take around eight weeks from when the bank or mortgage broker gets the full file. 
2. Using a broker makes a huge difference to the conditions secured for you and how quick and easy the process is, not least because of the Spanish mortgage law introduced in 2019 which has had a big impact, specifically on non-resident buyers. 
3. The maximum mortgage for someone not living in Spain and paying Spanish taxes would be 70% of the property’s value. Otherwise, the maximum is 80%. You will need to budget for the purchase costs and taxes separately. If you’re a non-resident you will need 30% plus the purchase costs as shown above, to complete.
4. To determine how much you can borrow, banks calculate around 30-40% of your net monthly income. Your monthly income must be enough to cover any existing debts, possible rent, and payment on the mortgage you wish to take out.
5. Depending on your profile, you can expect fixed rates from 2.5% for the entire term of your mortgage or variable from the Euro Interbank Offered Rate (Euribor) + 0.5%. As at May 2024, the 12-monthly Euribor rate is 3.65%.
6. Mortgages are usually provided by Spanish banks although there has been a recent influx of international private banks lending in the Balearic Islands providing bespoke solutions to HNW and UHNW buyers.
7. Presentation is key! Make sure your mortgage broker has good experience in the market. A sloppily presented file can yield poor results.
8. Before granting a mortgage, the banks do their own due diligence and insist on a company approved by the Bank of Spain carrying out the valuation. We recommend instructing a company yourself to maintain an open, transparent dialogue with the valuer. This will also help you to understand any legal issues impacting the value and any restrictions on bank lending. 
9. The mortgage debt is secured against the Spanish property. This means that, if there’s a problem in the future and the mortgage repayments  are defaulted on, the lending bank will seek repossession of the property via the Spanish courts.
10. Buy-to-let and interest only mortgages don’t exist in Spain so future rental income is not considered. Banks don’t mind if the property is to be rented out but they will still apply the affordability stress tests explained in point 4.
11. Be careful about hidden costs. It is possible in Spain, for example, to take out a mortgage without life cover and additional products.
12. If you’re a cash buyer, by borrowing an amount equal to your available cash, you could buy a property that’s double the value, perhaps in a more desirable location.

 

 

Currency exchange – top five tips

One key aspect of purchasing a home in Spain is currency exchange.  If you have funds coming into Spain from abroad, make sure you speak to a currency provider to handle your monthly payments. Achieving the best rate on every currency exchange you make will save you money on each mortgage payment. 

Charles Marlow recommends David Worthington of Optimal Currency for currency exchange. Our clients are always happy with the service he provides. David shared his extremely useful top five currency exchange tips with us.

 

1.Be prepared. Get set up ahead of time and understand the process so it’s nice and smooth on the day. We often see customers preparing meticulously for their property move and only engaging our services the week or sometimes the day before they complete. Remember that Foreign Exchange is a regulated industry and you’ll need to provide documentation similar to what your solicitor needs. DIY online apps only tell you what you need to do after they have your money, which can cause delays.

 

2. Do your research. There are thousands of foreign exchange (FX) brokers. Before you choose, ask yourself:

• Do they come recommended by someone you know and trust?
• Do they have good customer reviews?
• Many firms that look big are one-man-bands using someone else’s regulation and you may not be as well protected as you think. Check they are directly regulated.

 

3. Build a strategy. If you’ve done your due diligence according to points one and two, you’ll now have a dedicated broker working with you who is an expert not only in the markets but also the different methods and strategies available to make the most of your currency.

 

4.Understand your budget. Exchange rates can have a major impact. Getting your property at the right price often means getting the currency right too!

 

5. Stick to your plan. A good broker should introduce you to ‘forward buying’, a useful hedging tool for private individuals. Forward buying allows you to fix a current rate to use at an agreed time in the future, making it attractive to budget for a future property completion. Remember, you’re simply buying currency to acquire your dream home. You’re not a currency speculator.

 

If you have any questions about any aspect of the buying process, please feel free to contact us. We’d be delighted to help.