The Spanish property market is very popular at present; the team at Enness have received an increasing number of enquiries for purchases in Spain. I recently received an enquiry from a European client who was a UK tax resident. This client was looking to buy an off-plan purchase in a new luxury development, alongside a newly built golf course.
The construction was due to complete in early 2019 and would be a contemporary structure. He was looking for a €1million loan to buy this property, which he could enjoy his retirement.
He was, however, countering several problems in his search for an appropriate mortgage. Firstly, his income was structured in an unusual way through a limited company, and had been sporadic across the last three years; lenders will generally look for consistent income to calculate a client’s affordability. His wife, who was also a European national, was unemployed.
Secondly, both the unique design of the property and the fact it was the first to complete on the development made it hard to value effectively, which has a knock-on effect on how much the Spanish bank would be willing to lend against it. Spain is notorious for having conservative valuations; they don’t want any single area to particularly outpace other areas.
Finally, Spanish banks typically take a conservative attitude towards debt-to-income ratios, meaning they are often reticent to offer a mortgage in Spain to those who already have large outstanding mortgages. My client already had a mortgage in the UK.
My client’s low income was a surmountable obstacle. After spending time getting to know him I understood he had significant amounts of liquidity. The bank I chose allowed us to offset the mortgage debt the client had because his current mortgage term was going to end before the new mortgage debt began.
The final product secured was for 70% loan to value (LTV), for total borrowing of €1.15million. This would be on a capital repayment basis, as interest-only mortgages do not really exist as a product amongst Spanish banks. The rate for this was 2% fixed for 20 years, although, after deductions, this ended up being closer to 1.55%.
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