As featured in the Jan/Feb 2015 edition of Your Mortgage magazine
Spain bounces back
Excellent buying conditions are luring Britons back into Spanish property, but it pays to be careful, explains Clare Nessling
Winter often acts as a catalyst for people seeking a little slice of life in the sun and this year should be no different, especially when you consider the current combination of bargain overseas property prices and historically low mortgage rates on offer. Not to mention the growing strength of sterling, which is lopping tens of thousands of pounds off property prices in mainland Europe.
Spain is topping the list of property hot spots. It accounted for more than half (51 per cent) of enquiries received at Conti over January to September 2014, and the volume of Spanish mortgage enquiries has increased by a massive 95 per cent over just one year.
After a turbulent few years in the eye of the euro zone storm, Spain appears to be making a turnaround at last. The economy is showing signs of recovery, tourist numbers are up, and after years of plummeting house prices, experts are predicting increases in 2015, with the cost of property in some areas rising already.
Combine this with the growing strength of the pound, and you can see why buyers are returning in their droves. With the value of sterling hovering around €1.26 at the time of writing, the effect of exchange rates is pretty significant when you translate it into property prices. It means that for someone considering a home worth €200,000, the property now costs around £16,700 less than it did in the summer of 2013, when the pound was worth just €1.14.
With buyers’ budgets stretching that much further, that bolt hole in Spain could seem even more tempting, especially when you compare the cost with overheated parts of the UK market. And there are plenty of British buyers who are more willing to explore overseas opportunities in their search for better investment potential.
The number of homes sold in Spain increased by 12.1 per cent in the second quarter of this year compared with 2013, boosted by the increasing number of foreign buyers. According to the Ministry of Public Works, 16.4 per cent of total sales were to foreign buyers, with notaries describing them as the “principal motor of growth” for the Spanish property market.
The British are still the biggest group of foreign buyers but they no longer dominate as they did in the boom, according to Spanish Property Insight. The market today is much more diversified, which is positive news for Spain.
And the growing presence of US, Russian and Chinese buyers is a sign that the Golden Investment Visa initiative, which was introduced in September 2013 and offers residency permits to non-EU nationals in return for an investment of €500,000 or more in Spanish property, may be starting to have an effect.
Quite understandably, Spanish lenders have become a little stricter about whom they lend to, but contrary to popular belief, they are still willing to provide finance, particularly if you can prove that you have a sound financial profile. You can generally borrow up to 65 per cent of the value of the property, and rates currently start from just four per cent for a variable rate and 4.95 per cent for a fixed-rate over five years.
Lenders will require more details about your income and outgoings, so it’s important to have your accounts in good order. They will also use the debt-to-income ratio, which establishes whether you can afford to maintain the mortgage repayments.
We always recommend that a prospective buyer obtains an Approval in Principle before committing to a purchase. This costs nothing, but will tell you upfront about how much you can borrow, and therefore what price range you can realistically consider. It also makes sense for an overseas mortgage and the income used to service the mortgage repayments to be in the same currency, thus avoiding exchange rate issues.
Take advice and choose wisely
It’s a great time to buy property in Spain, but it’s also vitally important to seek the right advice. Bitter experience has taught many investors that scrimping on independent legal advice can effectively cost them their holiday home. You should always go through the same process that you would follow if you were buying a property in the UK. This means taking independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.
For many people buying property in Spain, it’s a lifestyle choice, and they’re attracted by the climate, amenities and culture, rather than earning a prospective fortune on their home there. If people enjoy what Spain has to offer, property can be snapped up there on better terms than have been seen for years. As long as you treat your property purchase as an investment over the long term, you can still buy with confidence, if you buy wisely.
Wendy Ambrose, from Dartford, has recently completed the purchase of a beautiful Scandinavian-style apartment near Marbella with her husband Daren. With their two sons and a daughter now at university, they decided to sell their large family home and move into a smaller rental property, and this freed up some money to invest abroad.
“We already own other properties in the UK and Portugal, but Spain was a location we had been thinking of for some time,” says Wendy. “This particular two-bed property is in a gated community of 130 apartments and was originally priced at €550,000 at the peak of the market, but the value started to fall and it was eventually repossessed.
“When we viewed it earlier this year, we totally fell in love with its stunning location and, with an asking price of just €159,000, we felt that it was too good an opportunity to turn down, even though it was quite a lot more than we had budgeted for. But we think it will earn its keep by providing a good regular rental income and capital appreciation over the long term. We are very happy with our purchase.”
The couple’s 10-year Spanish mortgage for 50 per cent of the property’s value was arranged through Conti and is fixed at 5.5 per cent for the first five years.
Top tips for buying in Spain
Obtain an Approval in Principle
This will confirm that you can obtain the necessary funds before signing any dotted line and prove to sellers that you’re a serious buyer.
Consider exchange rate fluctuations
We generally recommend that an overseas mortgage and the income used to service the mortgage repayments are in the same currency, thus avoiding exchange rate issues.
Check the developer’s track record and how long they’ve been trading. Obtain references from previous buyers and check comparable properties in the area and any re-sales offered on the same development.
Factor in additional costs
Bear in mind that bills don’t end at the asking price. Lawyer’s fees, local and national taxes, insurance, and so on, can often add at least a further 10 per cent to the cost of your acquisition.
Seek professional advice
Take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.