Like many European countries, Spain experienced a slowdown in foreign property investment during the pandemic, especially in the prime and super-prime markets. Being unable to travel to Spain meant that it was challenging for foreign investors to visit the country and buy prime property. However, as the world opened up throughout 2022, there was a continued recovery and the real estate market picked up.
So, what can foreign investors expect in 2023? This article gives the Enness market outlook and some tips on where to buy, as well as guidance on how to get the best Spanish mortgage in 2023.
While economic volatility and prime property sales do not typically go hand-in-hand, there is still plenty of demand for high-value Spanish property. It’s thought that around 600,000 property transactions completed in Spain in 2022, with 550,000 estimated in 2023. While this is a slight decrease in the expected overall transaction volume, this is normal in periods of economic volatility.
Some buyers are expected to wait for more certainty in the global economy before they move forward with a Spanish property purchase. Depending on how things develop on this front, we may see non-resident buyers find it becomes more challenging to finance a Spanish property if lenders restrict their lending criteria and offer lower loan-to-value (LTV) mortgages, as this can require they need to put down higher deposits. Interest rate increases are also likely to have an effect on the Spanish property market, as buyers who are more impacted by higher borrowing rates are likely to wait until rates effectively level out or decrease.
However, these factors won’t necessarily impact the top of the market where interest rates and LTV are usually less of a consideration. High-net worth individuals and investors have a larger asset base and more disposable income, which means their lenders usually have more flexible lending criteria and will underwrite Spanish mortgages on a case-by-case basis, rather than against inflexible lending parameters.
Mortgages and property finance for non-resident buyers purchasing high-value (from €800,000 to around €1 million) Spanish property in 2023 remains readily available from lenders. Private banks and alternative lenders in particular have plenty of liquidity and remain keen to offer Spanish mortgages and property finance, meaning there are few roadblocks to accessing finance. Enness are extremely well placed to offer guidance on these options, with unparalleled lender access, credentials and experience doing just that.
Spain remains popular for foreign investors, who flock to buy property in the country to enjoy the culture, weather, leisure opportunities, and lifestyle.
The Costa Del Sol region is especially popular with foreign investors looking to buy prime property, and the coastline and surrounding area just inland offers some of the largest and most luxurious real estate available in Spain. Because of continued high demand from buyers over the past few years, the region has also been a focus for developers. This means there is plenty of choice when it comes to high-value real estate, with everything from new-build villas and mansions to older renovated properties on offer.
Property in the region has historically appreciated well, which also draws investors who want to do all they can to ensure they will generate a return on their investment if they sell their home in the future. In 2022, the Costa del Sol region registered some of the highest price increases in Spain. Average property values increased by 11.5% year on year between August 2021 and August 2022, beating even the Balearics, another of Spain’s most popular prime real estate hotspots.
The Balearics are also home to some of Spain’s most high-end properties. Average real estate prices in the Balearics appreciated by 10.9% between August 2021 and August 2022, and reflect the continued demand for real estate in the region.
The four largest islands on the Balearic archipelago are all popular tourist attractions, and foreign investors purchase prime and super-prime property on all islands. Majorca and Ibiza are arguably the best-known prime destinations for high-net-worth individuals and they have the prime property to match and meet demand. Ibiza in particular, offers some of the most luxurious properties in Spain, and the islands are likely to remain some of the most popular locations for foreign investors to buy Spanish property in 2023.
For very high-value Spanish property purchases (loosely considered anything above €2 million) private banks tend to be the most competitive and flexible lenders in terms of rates, LTV and overall mortgage amount. Private banks offer tailored Spanish mortgages, and your broker will be able negotiate a one-of-a-kind package bespoke to you, based on your financing requirements, existing structures and in line with your financial situation.
While lending criteria may be restricted in some parts of the Spanish mortgage market in 2023 (namely from retail banks and for borrowers with less liquidity and smaller asset bases), private banks are unlikely to make sweeping changes and restrictions to their lending criteria, although they may be more cautious in their approach.
These lenders have always underwritten high-value Spanish mortgages on a case-by-case basis, rather than working from hard and fast lending criteria. Ultimately, this means that in 2023 it will be very much business as usual when it comes to offering Spanish mortgages, with the quality of the borrower dictating what a lender will offer. Provided you are a quality borrower with a solid financial background and good liquidity, accessing a Spanish mortgage in 2023 is unlikely to be any more challenging than in any other year.
To qualify for a Spanish mortgage from a private bank, you will need to have annual income of at least €250,000, and be looking to purchase a property valued in excess of €2 million. These lenders can offer mortgages for very significant property transactions including those of €7 million or more, which are increasingly common in the Costa Del Sol region and the Balearics. Private banks will usually also require that your net worth exceeds the value of your mortgage by at least 1.5x – if not double – to qualify for a loan from their institution.
You will, usually, also need to place assets under management (AUM) to access a private bank mortgage - ‘dry lending’ is increasingly rare and may become less available if the global economy slows in 2023. You’ll usually need to put a minimum of at least €1 million in AUM to access a private bank mortgage for a Spanish property purchase. For larger Spanish mortgages of €2 million or more, you will usually need to put at least 25-35% of the mortgage value forward as AUM. It is worth noting, however, that this is not your deposit - private banks usually offer 100% LTV mortgages, with the assets you place with the lender being actively managed by the institution to generate a return on investment.
If you are looking to purchase property of €800,000 - €1 million, some retail banks will offer Spanish mortgages, provided you have very straightforward financing requirements, a good deposit (at least 25-30% of the property value, sometimes more) and you are very liquid.
To qualify for Spanish mortgages from retail banks, you will also need to have what banks consider to be ‘standard’ requirements for financing: you want to purchase in your own name, are a salaried employee with significant and provable excess income, have a good financial base (savings, pension and other assets) and you are not coming up to retirement age. Retail lenders have relatively inflexible lending criteria and these can be restricted if there is an economic contraction, which may impact the availability of these lenders in 2023.
If you don’t meet these criteria or if you want to purchase a property of €1 million or more, you will most likely need to opt for a private bank mortgage or an alternative route to financing your Spanish property purchase. To discuss your options, contact our team of high value property finance brokers.
This guide is for information and illustrative purposes only and nothing contain within should be construed as advice or a recommendation. Financing options available to you will depend on your requirements and circumstances at the time. Any changes in your circumstances, any known likely changes, or omissions in the information you provide can affect the suitability of the options available to you. These should be communicated to us as early as possible. If you are considering securing debts against your main home, such as for debt consolidation purposes, please think carefully about this and consider all other options available to you. Your home may be repossessed if you do not keep us repayments on your mortgage or other debts secured on it.
Islay Robinson, a founder of Enness, is widely regarded as one of the UK's leading mortgage brokers. He has been instrumental in delivering some of the most complex and high value mortgages in the UK.