With the Euribor still in negative territory and interest rates in Spain close to their lowest ever, mortgages have never been cheaper. But as with all financial products, interest rates, monthly repayments, and conditions vary hugely from bank to bank, so it’s essential to shop around before you commit to a loan. To help you get an idea of what sort of products are on the market, read on to discover the top five mortgages currently available on the Costa del Sol.
Sourcing the best mortgages for your property on the Costa del Sol
A mortgage is often an essential requirement for Costa del Sol property, especially if you’re a first-time buyer and/or only have a small deposit. Although lending regulations have tightened up since the 2008 property crash and buyers can no longer source 100% loan-to-value (LTV) mortgages, there’s still plenty of competition for your business. It, therefore, pays to consult several banks to compare and contrast mortgage costs and conditions. Make sure you’re comparing like with like (i.e. same LTV and mortgage term). You may want to use the services of a mortgage broker on the Costa del Sol – these professionals have the advantage of knowing the market and ready access to multiple options.
Top tip – start planning your financing well in advance of your purchase so that you have pre-approval for a mortgage loan when you find a property you want to buy.
Types of mortgages available
Buyers of property on the Costa del Sol have access to a wide range of mortgage products, from both Spanish and international banks. Broadly speaking, they include:
Variable-rate mortgages
Approximately half of all home loans in Spain have a variable interest rate. The advantage of this type of mortgage is that you can tap into low rates and therefore benefit from cheaper monthly repayments. On the other hand, you cannot predict future rates and may find your repayments rise.
Fixed-rate mortgages
An increasingly popular option in Spain at the moment, home loans with fixed interest rates offer the advantage of the same monthly repayment throughout the term of the loan. There’s also more variety for shorter mortgage terms (less than ten years). However, you can never benefit from interest lower than your fixed rate.
Combination mortgages
Some banks offer loans that mix variable and fixed interest rates. They typically begin with a fixed rate and then switch to a variable after two years. These home loans offer the benefits and drawbacks of both mortgage types.
Interest-only mortgages
This type of mortgage on the Costa del Sol tends to be available for residents only and has the advantage of lower monthly repayments. But, an interest-only loan is more expensive in the long term because you take longer to pay off the capital.
Non-resident mortgages
If you aren’t resident in Spain and want to buy property on the Costa del Sol, mortgage products are available. LTV tends to be lower (50% to 60%), and the loan term is generally shorter (typically a maximum of 25 years). This is because banks consider loans for second homes to be higher risk.
Mortgages in other currencies
You can also take out a mortgage on the Costa del Sol in a currency other than euros, and many banks have loan products for the market. However, this type of mortgage is considered high risk by financial experts who generally recommend that your property and mortgage loan are in the same currency to minimise currency exchange fluctuations.
Did you know? Spanish banks use the Euribor (set by the European Central Bank) as the base for their mortgage interest rates. In early July 2020, the Euribor stood at -0.252%.
Latest statistics for mortgages in Spain
The most recent figures for home loans in Spain (April 2020) show an increase in the number of fixed-interest mortgages and almost rock-bottom interest rates.
• The average interest rate for all mortgages: 2.48%
• The average interest rate for fixed-rate mortgages: 2.86%
• The average interest rate for variable-rate mortgages: 2.13%
• 51.6% of new mortgages in Spain in April were for fixed-rate loans.
• The average length of a loan: 24 years.
Source: INE, 26 June 2020 https://www.ine.es/daco/daco42/daco426/h0420.pdf
Requirements for mortgages on the Costa del Sol
As is the case in most countries, Spanish banks require loan applicants to fulfil a series of conditions and supply plenty of paperwork. The required documentation varies depending on whether you are tax resident in Spain or not.
The maximum loan can be as high as 90% for principal home loans (although 80% is much more common) and for up to 30 years. Mortgages for holiday and investment homes usually go no higher than 60% LTV, and you’ll find it challenging to get a loan for longer than 25 years. Some banks do not lend to buyers over 60.
Top tip – prepare your paperwork and get your documentation in order well in advance. Translations and validations take time.
Paperwork
Employed applicants are usually required to submit: salary slips for the last six months, the latest annual tax declaration and six months of bank statements.
Retirees need to provide: their latest annual tax declaration and six months of bank statements.
Self-employed individuals must show the bank: their latest annual tax declaration, their accounts and 12 months of bank statements.
You should also provide proof of any other loans you have, including mortgages. And if you are not resident or have recently arrived on the Costa del Sol, you will need to provide proof of your credit record such as the report issued by companies like Experian.
Commitments
As the old adage goes, there’s no such thing as a free meal, and even the best mortgage deals on the Costa del Sol put some sort of obligation on the applicant. The range and extent of commitment varies from bank to bank (and sometimes from loan to loan within the same entity). You can typically expect the following:
• To have to open a bank account and pay your monthly salary into it.
• To take out insurance, usually home but sometimes life as well.
• To take out a pension plan.
• To contract a credit card, generally with a minimum annual spend.
Mortgage costs
Home loans incur several costs, and you should budget for these on top of the 10-12% expenses involved in buying property on the Costa del Sol. Expect some or all of the following costs:
Valuation costs – in recent years, banks tend to pay for this.
Mortgage fee – banks charge you for setting up the loan and fees range from 0.5% to 2% of the amount borrowed.
Stamp duty – known as AJD in Spanish, it is levied at 1.5% of the mortgage loan and paid by you.
Notary and land registry fees – banks are now more open to paying for these so negotiate this into your contract.
Top tip – read (and reread) the small print for your mortgage on the Costa del Sol. Look especially carefully at the clauses for early repayment (banks typically charge 2% fees on these during the first years of the loan); the so-called cláusula suelo (floor clause) that binds you a minimum interest rate; and who pays which fees. Check our article about the New Spanish Mortgage Law
Read more about the costs involved when you buy property on the Costa del Sol.
Best mortgage deals in Malaga
To source the best mortgage loans on the Costa del Sol, we have created a first-time buyer persona. We have presumed that the buyers are a couple, tax resident in Spain, aged 35-40 with a combined annual income of €70,000 and a deposit of €30,000 to €40,000.
To find the best loans, we used a well-known comparison site. In July 2020, the best offers available for mortgages from Spanish banks were the following:
Best variable-interest mortgages on the Costa del Sol
TARGO BANK – variable interest rate of 1.10% for the first year and then Euribor +0.95%. Loans are available for up to 90% LTV for between 10 and 30 years. Extra monthly costs include around €20 in life and home insurance.
OPEN BANK – variable interest rate of 1.11% for the first year and then Euribor +0.99%. Loans are available for up to 80% LTV for between 5 and 30 years. Extra monthly costs include around €12 in home insurance.
COINC – variable interest rate of 2.14% for the first year and then Euribor +1.10%. Loans are available for up to 80% LTV for between 3 and 30 years.
Best fixed-interest mortgages on the Costa del Sol
TARGO BANK – fixed interest rate of 1.82%. Loans are available for up to 90% LTV for up to 30 years. Extra monthly costs include around €20 in life and home insurance.
CAJASUR – fixed interest rate of 1.88%. Loans are available for up to 80% LTV for between 10 and 30 years. Extra monthly costs include around €19 in insurance.
Your next step
Your real estate agent usually has access to information on mortgage loans on the Costa del Sol and may be able to recommend a broker. At The Property Agent, we have been helping people find homes that move them for over 15 years and have expert knowledge of the local market and a network of contacts within the best Spanish banks. Contact me now for advice on the best property and mortgage for you.
