Get Your Finances In Order Before Moving to Spain
Whether you are looking to spend anywhere from tens of thousands, to hundreds of thousands of pounds on a property in Spain, it is nothing short of a huge decision to make. So of course, it is a decision that should never be taken lightly.
Before deciding to purchase a property, you must take some time to work out your finances. It’s important to determine how much money you intend to spend on a home as well as your financial sources, whether they involve either selling or re-mortgaging your property in the United Kingdom, if you are selling other assets to raise the necessary funds, or if you plan on taking out a Spanish mortgage.
When purchasing any kind of property, it's also imperative to consider all of the costs that will be involved in addition to the purchase price, as well as any other unforeseen issues that may arise. If you do not have a firm grip on your available funds, as well as know when the funds need to be released, chances are you may become very attached to purchasing a property that realistically, you can't afford.
Therefore, making a financial plan is an especially important step on your journey to buying your dream home in Spain.
Determine Your Budget
Once you have worked out exactly how much money you are able to spend, you will be able to eliminate any properties you know you will not be able to afford. This will help lessen the chance of you becoming attached to a property in an area where you can’t afford to live.
Make a note of the following financial points to consider:
- How much money you actually have available to in hard cash to go towards the purchase of a property.
- Determine how much of a deposit you will need to pay and figure out the monthly repayments should you decide to take on a mortgage.
- Decide whether or not to re-mortgage your home in the United Kingdom, which will release equity.
- Add up all fees, taxes, etc. that will come with purchasing the property.
- Write down the maximum price you are willing to pay for a property, fees, and taxes included (see the additional costs section below).
- Add up the overall cost of general maintenance of the property per annum, as well as the cost of spending time there.
As previously mentioned, there are other costs involved with purchasing a property in Spain. These costs depend on a few factors:
- Whether the property is new or a resale
- The purchase price of the property
- Whether or not you are purchasing the property with a mortgage
Avoid This Costly Mistake
Perhaps the biggest mistake that you can make financially is failing to realize the impact that exchange rates have on the total purchase prices of real estate. Purchase prices are in euros, and if you agree to purchase a property in Spain, you must know the total amount of euros you will need, with the only exception being if you already have the required amount in a Spanish bank account.
Generally, you will want to ensure that you allow approximately 10% to 12% of the total purchase price to cover all necessary fees and taxes. These fees and taxes include the following:
- Transferring tax for a property that is being re-sold.
- ITP, which is generally levied at 8% across the whole of Spain, will need to be paid; however, ITP is levied at 10% in the Costa Blanca region, with the exception of Murcia.
- Notary fees, which generally run between approximately 500€ to 1000€.
- Land Registry fees, which are roughly half of the cost of the notary fees.
- Fees for independent lawyers, which can cost anywhere between 1,000€ and 2,000€.
- If you are purchasing a property with a mortgage, you will need to pay valuation fees of approximately 350€ as well as stamp duty, which is around 1.5% of the mortgage deeds, and a lender's commission, which is around 1% of the capital loan.
- If the property is a new build, you will need to pay VAT of 10% rather than an ITP.
- If the property is newly built, 1.5% of the total purchase price will be put towards a stamp duty.
In addition to these fees and taxes, there may be other expenses. For instance, if you are not a resident of Spain, you will have to get a tax identification number, (NIE) before you can legally buy property. Issued by the General Directorate of the Police, this is something that needs to be used on all communications and tax returns addressed to the tax authorities and must be processed before the completion of sale.
The exchange rate process is often overlooked, even though you can either save or lose a lot of money with this kind of transfer. However, with a currency exchange company you have the ability to lock in an exchange rate today for a purchase that you intend to make later on down the road. This will allow you to agree to the current selling price in euros, while at the same time securing the overall price of the property in pounds.
With regards to financing, there are many different methods you can take advantage of to finance a property in Spain. For instance, properties can be funded through various loan options, all of which should be carefully considered and examined before either selecting a real estate agent or looking for a property in general. It's also helpful if you obtain a mortgage that has been agreed to before you begin the process, whether you decide to go with a UK-based mortgage or a Spanish-based option.
More points to note:
If you are not currently living in Spain, you will have fewer choices to take advantage of regarding borrowing money than you would in the United Kingdom. This is because Spain was hit hard during the financial crisis of 2008 compared to the UK, which ultimately led to much stricter lending conditions.
If you are considering applying for a Spanish mortgage, you will need to provide proof of both your identity and income, as well as other details regarding your credit cards and any bank loans you may have. It's also important to know exactly how much you will need to repay per month for the mortgage, since choosing the wrong deal could cause you financial difficulties.
Read more of our 8 part Moving To Spain Guide:
- Where to Begin
- Research Is Key
- Property Financing (this page)
- Financial Planning
- Making a Living
- Finding a Dream Property
- Hiring a Solicitor
- Making the Move