Dreaming of a beautiful Spanish property? Then this blogpost is for you, in this guide we will walk you through buying a property in Spain.
The homeownership numbers in Spain are fairly high, 80% of the residents own their own property and many own them without a mortgage. During the global financial crisis and the following property market crash, Spain suffered significantly. The prices of houses dropped by as much as 30% but the market has stabilised a lot more in the last few years. There has been a steady increase in prices since 2016. Average house prices in major cities rose by 5% to reach 1,649 euros per square meter based on the figures from the 3rd quarter of 2019. Properties on the Balearic and Canary Islands saw an even higher increase of 11%, reaching 1,604 euros per square meter. Currently, the most expensive places to buy properties in Spain are San Sebastian, Barcelona, and Madrid. In all 3 areas, prices ranged from 3,000 euros per square meter and went up to 3,600 euros per square meter.
It is good to do some research of the market before buying a property in Spain, as the property market has many quirks. Some factors to watch out for when buying are property scams, high capital gains tax, and fluctuations in the property market. The COVID-19 pandemic has caused added uncertainty which means that now could be a risky period to buy in Spain.
Before the COVID-19 pandemic, governments of the various regions in Spain were thinking about introducing stricter rules around people buying holiday lets, after rental prices significantly increased in areas with popular investors. The 17 regions of Spain each have the power to set rules around foreign buyers purchasing properties to rent out. The Balearic Islands have the most stringent rules around this topic, where only the resident of Spain can apply for buy-to-let licenses. Madrid is a close second with the most stringent rules, as they only allow stays of up to 5 days. Therefore, buying a holiday let is even more complicated than it was before.
However, Spain is still a very welcoming country for foreign buyers that limits the possibilities for common home buying errors. As an expat, the rules for buying a property in Spain are fairly straightforward. A financial number, which can be obtained by bringing your passport to the police station, is going to be required before buying. Usually, this is processed on the same day for Spanish or EU citizens but may take a few weeks for others.
A golden visa program is offered by Spain for foreign property owners. Under this program, if you invest over 500,000 pounds in Spanish properties, you can get a residency visa. Primarily, these visas are for retirees and holiday home buyers but they are especially popular with investors from outside the EU.
Costs of buying a property in Spain vary from the different areas, but many are negotiable as there are no fixed fees for lawyers or estate agents. The buyers have to pay for most of the costs which are generally:
- Property transfer tax: 6%-10% for existing properties/ VAT at 10% for new properties
- Notary costs, title deed tax and land registration fee: 1%-2.5%
- Legal fees including VAT: 1%-2%
The estate agent fees are normally paid by the seller in Spain. The estate agents often charge their fees as a percentage, around 3% of the final sale price.
To finance a property in Spain, you have some options. First, if you have the finances you can buy without a mortgage. However, it is also possible to obtain finance. Banks offer mortgages and some even offer specific deals for expats from certain countries. As a foreign buyer, you may discover that you can only borrow at a lower loan-to-value rate than residents of Spain. This means you’ll need a bigger deposit. Residents of Spain can generally borrow up to 80% of the property’s assessed value, but those who are not residents might be limited to 60%-70% loan-to-value which is depending on the type of mortgage. In Spain, debt that is tied to a property is automatically transferred to the new homeowners when the property is sold. Therefore, it is especially important to make sure that the home does not come with any debts attached to the property, or if there are, that they are covered by the terms of the contract.
