To Mortgage or Not to Mortgage

Hi,

I'm after as much advice as I can get on whether to to go down the mortgage route or pay cash for a Spanish property.

I'm going over this weekend to look at an apartment for €40,000, offered with 100% mortgage.

I guess I have the following 3 options:

1) I take the 100% mortage for a start, and then maybe look to pay it off reasonably quickly as and when exchange rates are favourable. With this I understand I may face early repayment fees if I they appear in the mortgage

2) I pay part cash and part mortgage initially. Leaves me more flexibility with the cash I have, but depends on what fees I will have to pay for the mortgage

3) Arrange my finances, so I pay the cash amount in full

I know the easiest option is to just pay cash in full, but just wanted to know if I would be missing something financially by not using the low interest rates at the moment for mortgages. Am I missing any tricks that will save me money in the long run ?

thanks, Paul 

Arrangement fees are generally quite high here in Spain and interest rates not that competitive so all other things being equal you would be better off not taking out a mortgage.

But are all other things equal? You will be exposing 40K€ to whatever happens to the Spanish currency. If it was me I'd prefer the cost of a mortgage to the possibility that my investment may drop by 20% or more if Spain crashesd out of the Euro. Only you can decide how likely that is and whether to take the risk.

Thanks David

We applied for a mortgage on a piece of land which we had bought for over 80,000 euros and which was worth way over 100,000 euros at the time.  Solbank appointed a surveyor who admitted he had no idea of house and land prices in that area and he valued it at 60,000.  They then said they would only lend us 50%, i.e. 30,000 euros.  We paid hundreds of pounds for the valuation and had to open an account with Solbank, which we then found hard to close and they charged us fees for several years; in all we paid out about 500 euros.  After locating a mountain of paperwork and photocopying it for the bank (they wanted copies of the title deeds of all of our buy-to-let properties in the UK, for example), and after several long meetings at the bank, we were about to sign, when the bank manager said we now needed to go over the notary and the various admin fees would come to about 1,000 euros.  Obviously, we didn't go ahead and wasted a lot of time and money.  I would raise the money in the UK or use cash unless I absolutely had no other choice than getting a Spanish mortgage.  All the best. 

 ROFLMAO!

We have just been through the process and opened an account with La Caixa . Given that we only wanted to borrow a small amount and our credit rating was good the manager said " no problem ". Having applied and provided the mountains of paperwork and paid for a valuation the valuer only valued the property at 60% of what we expected. That was Ok as we were going to add more hard cash to the purchase. Finally at the last minute the Bank stated we had to have one private pension paid into the Spanish Bank. Last straw.. we thought and pulled out . We then found it was easy to have a re-mortage of our Uk home and this went through no bother in 6 weeks we had the funds and completed. At least we will know what the payments are for the coming years and rates are very attractive in the UK now . So if you have equity in your property i would suggest use it. The red tape and last minute suprises you get from some Spanish Banks is not worth the hassle..... When you come to sell you have no mortage to settle and the deeds are in your name and not the Banks name !!

Well, aliton, that was very similar to our experience, so it shows that there is a pattern emerging here.

 We have just completed on our house here. We used a mortgage broker who eventually used Deutsche Bank ES, The whole process was a nightmare of delays and paperwork. Banks would say one thing then randomly change their minds! We have a very clean credit rating and good income but even then it was fraught with difficulties so that just when you think you're there they spring just one more request for other information. 

Maximum mortgage you can get here is 60% of valuation and valuations are coming in very low. Interest rates are better than UK though so once you have it, it's cheap. They will also only lend on Urban land and not country properties. 

We eventually ended up with quite a small mortgage which is easily covered by renting our UK property.

If a property is offered for sale with 100% mortgage it will be because

it is a bank owned repo which they want to offload.These properties

are usually at the rubbish end of choice and if offered at 40k euro will not

be even worth looking at. Also the 100% offer will have a multitude of catch penny

clauses and be a minefield of paperwork. Leave well alone !

When you sell a property that has or had a mortgage on it, it costs 5000€ to have it 'removed' from the Land Registry.  Nobody tells you that at the bank when arranging a mortgage!.. Pay cash or arrange Briish finance!

Many thanks for sll yher replies. Just leaving for the airport to go and view some properties.

Looks like spanish mortgage will be a no no.

When you sell a property that has or had a mortgage on it, it costs 5000€ to have it 'removed' from the Land Registry.  Nobody tells you that at the bank when arranging a mortgage!.. Pay cash or arrange Briish finance!

......no it doesn't cost 5000 euros. I recently had my mortgage removed from the land registry and my local Spanish lawyer charged me 460 euros to have it done. The bank who I had the mortgage with wanted to chage me 1200 euros!

Hi

Just wanted to give the other side of the story.  I would highly recommend a Spanish mortgage.  Just been down that route and couldn't decide to pay cash or mortgage.  Bought lovely villa for £170,000 euros on Mar Menor Golf Resort. But as they were offering excellent 100% mortgage deal and very low interest rates seemed crazy not to take it, if only for a few years. There are NO early repayment fees so we can pay money off as and when we want. Also the arranging of the mortgage was hassle free compared to the great hassle we had in the UK of arranging our last mortgage. The bank in Spain was so much more informal and pleasant to deal with - and very quick too.  Didn't ask for nearly as much paperwork as the UK bank we dealt with.

Good luck with your purchase :)

Hi jollyhols,

I suppose there will always be an exception.

 Out of interest what happens to the various taxes and fees which the sale of any property attracts ( approximately 10%). + the mortgage arrangement fee? It has always been my understanding you cannot mortgage taxes and fees. Has something changed in this regard? Most of the bank owned property that I have come across, that has a 100% mortgage offer, is usually unsalelable due to poor location, questionable build quality or the fact that the complex may be years away from completion, which in fact is why banks are pushing 100% facilities, this being the only way they can attract any interest. Unless a convincing explanation is offered I would steer well clear of this offer, always remember the old adage, if something appears too good to be true, its because,it usually is! Either way best of luck on your trip, lets hope you find a bargain, but I have a feeling that you are much more likely to pickup a bargain if you are "cash ready"

To answer a few queries

a)general overall "extras" amount to closer to 12% then 10%

b)mainly two vlauation compnaies used by lenders these being tinsa or tassa, and lenders wil llend the lower of purchase price or valuation

c) valuers arrive at the value by finding at least 3 simialr properties via th elocal town hall which have sold in the last 6 months and then working everything out per sq metre-so in theory more accurate than the UK system however if "black money" has been involved this can be counter productiv eon the overlal valuation

d) interest rates tend to be calculated annually for the forthcoming year meaning strangely that either th elender can lose out or the borrower can lose out should things change during the year

e) If you had circa £40,000 in cash(assume exchange rate today of 1.22=48,800e) and the exchange rate changed from say 1.22 -1.27=50,800e) so I would take amortgage for circa 60% and then generally one can overapy up to 25% of borrowed amount each year without penalty- simply take advantage of exhcange rates as and when, also bearing in mind that the interest stil lbeing earned on your money also offsets the rate of interest being paid on the spanish mortgage.

f) Likelyhood that you will require net disposabl eincoem of circa 40% to gain a mortgage in Spain anyway, however they only class outgoings as uk mortgage, spanish mortgage, council tax, loans and debts ie not food.

I'm facing much of the same questions.

I haven't found my dream property yet, so the decison on how I'm to pay for it is also still not that pressing.

But it seems to me, that with the world sooner or later to emerge from a recession, it would be better to tie my money up in stocks and ride the market up maybe 10% a year for several years and finance the property with debt, rather than vice versa.

Passive managed funds have picked up circa 8% in the last year these are self balancing back to ones original atitude to risk.

Attitude to risk is your main consideration here as is correlation ie what happens if your funds decrease and the property vlule does so as well etc. Porbably a 50-50 deal is better suited ie pay half of the property upfront etc.

A point for one of the earlier posts- re remortgaging your UK property and using he capital to purchase in Spain, fine in principle however UK lending has tightended up massively and maximum UK lending wil be restricted to five times your proveable income minus any current liabilities.

 'ride the market up maybe 10% a year ........'

Pretty bullish talk...........     Do you have any basis for thinking this is realistic?