In Part Four of your six-part series on buying in Spain, we’re looking at one of the most crucial aspects of the entire process: how to buy in Spain. You need to know how you can finance your property – what funds you have available – as well as who the key players to involve in the process are.
How can you finance a property in Spain?
Firstly, go through your assets: cash, investments you can cash in, savings, pension drawdown and any items you can sell. Putting these together, work out the total amount of money you have available to hand. Don’t forget when thinking how to buy in Spain that you can double, triple or more your buying power with joint ownership.
If you’re not going to be buying outright in cash, then you’ll need a mortgage. Speak to an estate agent, independent financial advisor, bank or other lend to go through your options. You’ll need to find out how much deposit you’ll need, how you’ll meet the monthly repayments and what you’d do if you couldn’t pay (eg due to illness). If you have a property in the UK, you might be able to release funds, either by remortgaging or by equity release.
If you’re moving to Spain for good, it could be beneficial to move your pension overseas. This could be a SIPP (self-invested personal pension) or a QOPS (qualifying recognised overseas pension scheme). You’ll often gain greater control over your pension (and potentially reduce your tax bill). Do not that conditions do apply, and the UK authorities will only allow you to transfer your pension into one of these schemes if you meet certain criteria. For starters, you’ll need to be (or about to be) living abroad and you must remain living abroad.
Generally, it takes around ten-years of being a non-resident for a pension moved to QROPS to show benefits. This makes it really important to consider your options now rather than later.
We can put you in touch with an Independent Financial Advisor who can advise you on financial planning and taxation when you move to Spain. Simply fill in the form or give us a ring on +44(0)20 7898 0549.
Remember that costs don’t stop as soon as you get the keys. Make sure to budget for local property taxes, maintenance and travelling expenses to get there.
When calculating how to buy in Spain, keep in account these main expenses:
- Notary fees – These are normally split between the buyer and seller, with the buyer paying for the issuing of the deeds. Rates are set by law. Allow for 0.5 to 1% of the purchase price.
- Land Registry fees – Allow for 1% of the purchase price.
- Independent lawyer fees – this varies, but allow for €1,500 to €3,000. If the purchase is complicated they can be higher.
- Valuation fees (around €350), stamp duty (1.5% of the mortgage deeds) and a lender’s commission (typically 1% of the capital loans) if you are buying with a mortgage
- VAT of 10%, instead of ITP if the property is new-build
- Stamp duty for a new-build, 1.5% of the purchase price In addition to these extra costs, as a non-resident you will need a tax identification number (NIE) to buy property. This is issued by the General Directorate of the Police, and must be used on all tax returns and communications addressed to the tax authorities. This NIE should be processed before completion and you cannot buy a property in Spain without an NIE.
For a resale property, you’ll need to pay transfer tax (ITP). Generally, this is levied at 8% across all of Spain (including the islands), but in Costa Blanca (except Murcia), this will be 10%.
Managing your currency risk
There’s one big unknown when thinking how to buy in Spain: currency risk. The exchange rate is constantly changing, not just day to day but by the minute. The time period between putting in an offer and actually paying it is more than enough for significant market movements. A fixed price in euros is therefore constantly changing in pounds. Consider this: a €250,000 house has changed price in pounds by £10,000 over the last twelve months.
That’s why we encourage you to use a forward contract with our partner Smart Currency Exchange, where you can fix the same exchange rate for a year without any further fees. You can find out more in Smart’s Property Buyer’s Guide to Currency.
We have recently bought a house in Spain and involved Smart Currency from the start. David Comber and everyone else we have spoken to were straightforward to deal with. No jargon, no fuss and with a network of relevant experts at their fingertips (e.g. lawyers). Of course we had concerns about handing a large amount of money over to strangers but it’s all been absolutely fine. Involve them before you go house hunting and you will be ahead of other purchasers.David Browning
Who are the key people to involve?
The two main players when deciding how to buy in Spain are an agent and a gestor. The right agent will make or break your purchase. You need one who is legal, reliable and, most importantly, understands the type of property you want. A good agent will not be salesy, and will not show you homes that definitely wouldn’t suit you.
A good agent…
…operates legally and ethically
Spain does not require agents to be qualified or regulated, but there are professional organisations for estate agents that require some training and a degree of protection. The best known are the API (Agentes de la Propiedad Inmobiliaria) or GIPE (Gestores Intermediario en Promociones de Edificaciones). Check that the agent is still a member by looking at the organisation’s website.
…is proactive and offers a good service
If you ask a question, you want someone who calls you back. If you have a problem, you want someone who takes action to get it resolved. Determining up front if an agent is helpful will give you a better chance of getting things done properly. Send them a brief or an email before you go to Spain, asking them a question and see how long they take to get back to you – and how enthusiastic they are about helping you.
…has experience working with UK buyers
You want an agent who knows the area, understands the market and knows the politics involved to make things happen. In Spain, agents will typically focus on a particular patch – so make sure you get one that knows your favourite patch well.
…stays with you until the end
A good agent will help you further than just the final contract; opening bank accounts, finding a builder, doctor, schools, whatever you need. You can find out if your prospective agent does this by asking for past-buyer feedback.
Spain Property Guides can put you in touch with carefully chosen estate agents about whom we receive excellent feedback from our readers. Get in touch with them by filling in our form or calling +44(0)20 7898 0549.
The gestor will likely come in if you’re buying off the beaten track. In the days when many people were illiterate, they needed a representative to deal with bureaucracy, the gestor. The role still exists and they can be very useful in dealing with Spain’s bureaucracy and organising the connection of utilities when you have bought the property. They should not replace your lawyer, however.