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When it comes to getting a mortgage, you don't necessarily have to deal in Euros just because you are in Spain - Many banks offer mortgages in euros or sterling. If you intend to rent out the property, you will receive Euros, so it makes sense to take out the mortgage in Euros so you can offset the rent against repayments.
It is also advisable to have the asset (the property) and the liability (the mortgage) in the same currency to avoid possible losses due to fluctuations in exchange rates when you come to sell. Sticking to one currency for both limits the element of uncertainty.
Repayment periods are lower: 10-15 years in Spain is traditional, although some banks will allow up to 35 years. Maximum loan-to-values are also lower, usually around 60-80%. Some internet based lenders will offer 100% mortgages, although not for non-residents.
In theory, Spanish banks can grant a loan or mortgage to anyone - resident or not - on any property. In practice, Spanish banks have tightened up their lending criteria due to repayment problems in the 1990s. But there are more mortgages than ever currently in Spain - the average amount being for 100,000 euros - and interest rates are low, currently at around 3.1% for residents, 3.7% for non-residents.
Another way that many people have financed their new home in Spain is through equity release plans in the UK. Many people have significant value in their UK home and through simple restructuring can generate more funds than they at first thought. In order to fully understand this option speak to an independent financial advisor who can help you assess if equity release is for you.
The Benefit Of Buying In Euros
Low interest rates at present in Spain mean that the money you borrow to finance property is relatively 'cheap' compared with the UK. European mortgages are calculated according to the Euribor base rate (the Euro Interbank Offered Rate, currently at 2.3% + around 1.25%).
UK mortgages are based on LIBOR (the London Interbank Offered Rate), which is significantly higher than EURIBOR at around 4.75% + 1.25% and likely to continue rising.
For investors, Spain's low interest rates are a key factor. In the UK, a property boom was triggered by low interest rates. As rates now increase, the market has slowed down. In Spain, however, the currently low interest rates are unlikely to rise significantly for the foreseeable future and so property finance will remain cheap, compared with the UK, and the Spanish property market is likely to continue to thrive.
An expanding EU, with a further 10 countries soon to become members, will most likely contribute to the success of the Spanish property market. As seen in Germany and Ireland, huge amounts of their outgoing currencies were invested in Spanish property and this was one major factor in fuelling the Spanish property boom. It is possible that the addition of new EU members will have a similar effect.
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