Legal process of contracting a Spanish mortgage
The mortgage procedures in Spain
In Spain there are significant differences to the legal process of contracting a loan to other countries. Whilst many similarities apply the legal requirements in Spain reflect Spanish Law which is not the same as some non-residents buyers may be used to.
There is currently no Europe wide regulation to which all countries and banks adhere to for the advice of and arrangement of finance however this is beginning to change with a new mortgage directive being published across Europe in late 2017.
The Mortgage Process in Spain
1. Application for financial approval
Applications for Spanish mortgages reflect the application process of all countries offering property finance. The Spanish bank will require documentary evidence from the individual confirming who they are, and their fiscal situation regarding all incomes and debts. Only official documents will be accepted and each bank has its own level of requirements which it will have agreed with the Bank of Spain is sufficient for full due diligence to be undertaken, and affordability of the loan checked and assessed. The most Spanish banks work on net not gross incomes and will look to see that outgoings on all debt payments including Spain do not exceed their specified ratio. In general, although this will vary from bank to bank.
2. Underwriting and application
Some banks have an internal scoring system which is applied on all applications and provides an initial viability based on the information fed into the scoring system. The scoring system is developed by an analysis of the banks back book and has categories that historically indicate high or low risk, based on performance of existing mortgages in Spain. This process can make it difficult for perfectly acceptable applicants to gain an initial viability if they fall into one of the systems high risk categories, even if everything else on the application appears to fit. Many Banks in Spain do not in general have sophisticated underwriting tools so work to a set level of parameters in terms of debt to income ratios and loan to values. Other factors will then include the individual preferences and or views of either the Branch or the Risk Team.
3. Financial approval to lending before committing a purchase
Most banks will provide a written financial approval to the Spanish Mortgage based on the individual circumstances, which is then subject to valuation of the property, before the full mortgage in Spain offer can be done. The most banks require, that a valuation is paid for and undertaken on the property before any analysis of the application can take place. Please contact us for a no obligation assessment, quote and a no cost full financial approval.
4. The Next steps after the financial approval
Valuations
Where a valuation is not required before pre-approval, once the application is financially approved, the applicant will need to pay for and have undertaken a valuation. Each bank in Spain use its preferred valuation companies which it wishes to instruct. Under new legislation a buyer can insist that any Bank of Spain registered valuation company of his choice is used but not all banks in Spain accept an application where another banks valuation company is going to be used.
Mortgage Offer
In the past banks in Spain only verbally confirmed offers, these were provided once the valuation was back and a final sign off of the loan, by a member of the compliance departments was made. In the past this has meant on many occasions, when the Spanish mortgage was signed at notary, the terms were different to those expected, and or the deeds were signed on different terms without the client or the client’s representative being aware. These changes could have included the implementation of previously un-discussed floor or minimum rates, different interest rates, different term, or other ancillary products added and embedded into the deed, so they could not remove at a later date. Under the new legislation, put in place to provide a much higher level of transparency, Spanish Banks are now required at offer to provide clients with a FIPER. This document clearly outlines and confirms the terms by which the loan has been agreed and should exactly demonstrate what is in the deed at completion.
A FIPER includes personalized information sheet outlining the basis on which the offer has been made and all the terms. At notary it is now a requirement that the Notary checks the deed against the FIPER provided and ensure that what the client expects their mortgage to look like is exactly what is in the deeds.
The completion
All Spanish mortgages are embedded in a legal deed. This deed outlines the exact terms and obligations of both the lender and the mortgagee. Once signed it is legally binding on both parties. The notary oversees the transaction but either the mortgagee or their representative along with a representative from the bank who must be present at signing. The notary requires that the person signing either speaks Spanish or has an interpreter with them so they can ensure that what is being signed is really understood. It is at completion that monies required to finalize the mortgage including the bank arrangement fee are taken.
The post-signing of mortgage deed
After the loan is signed, and any anticipated level of taxes or costs are retained as a pre-payment the documents will be transmitted to the land registry authorities to be registered. A copy of the deed (copia simple) swill be given to the client but the original deed will be not be available until Land registry has reviewed it and agreed it. The tax consultant (gestoria) of the lending bank and your De Micco & Friends lawyer will keep control of the registration process to ensure the loan is fully secured and the cost of doing this is included in the Banks, notary and land registry assessment of costs.
The Post mortgage registration in Spain
The terms of the mortgage are embedded in a legal deed. So, any changes post completion to the loan terms will in most instances instigate the requirement for a new deed. If a new deed is required it is deemed to be a new mortgage and all costs of the mortgage, such as mortgage deed tax, become payable again. Some minor changes can be agreed in the future, which are dealt with by changes to the existing deed known a “novacions” , but these changes are limited by current law to interest rate adjustments or adjustments to the length of the term of the loan. This legal process prevents mortgage holders from altering a loan, re-mortgaging and or lender hopping as is prevalent as in Germany or the UK.
De Micco & Friends Lawyers and tax advisors
De Micco & Friends lawyers specializes in mortgage services for clients not only on the Balearic Islands but throughout Spain. We offer an independent advice for foreign buyers of properties. With many years of experience in the loan and purchase market we can help and advise you throughout the whole process and finding an bank with the best conditions.
We will help you understand what you can borrow from a Spanish Bank and what impact this has on the purchase price you can pay. Our lawyers and tax advisors will package your Mortgage in Spain application to give it the best possible chance of being approved for the best possible terms and conditions and highest loan to values.
De Micco & Friends is NOT a mortgage broker! We offer to our clients neutral an independent legal and tax advice to find and negotiate the best package.
Please find more information about mortgages in Spain for non-residents here.