Achieving the dream of buying property or living in Spain is possible for anyone. Like any big project, it takes a vision and a succession of small steps that take you closer and closer to your goal.
The very first thing you need to do when you have decided to buy property in Spain is think about exactly why you want to go, and what you’re looking for.
Think about what kind of property you want – what would be the perfect home? Where is your perfect location? How many bedrooms or bathrooms do you need? Do you want a terrace, garden and/or a swimming pool? Do you want to rent the property out for part of the year?
The more time you take on this, on thinking about what you want, why you want it and when you want to achieve it, the easier it will be for you to set your ambitions – setting you up for a better outcome that just ‘winging’ it.
Any questions that you can’t find the answer to, write it down somewhere so you can return to it later.
Your budget is also important here – know exactly how much you are willing to pay, and how you are going to do so, from the beginning.
Spending tens or hundreds of thousands of pounds is a huge decision, and not one that should be taken lightly. Working out your finances should be the very first step on your journey to buying property in Spain. You need to know exactly how much money you can spend, and what your financial sources are: savings, the sale or re-mortgage of your UK property, etc.
The key financial points to consider are:
The total amount of money you have available to purchase a property
If you buy with a mortgage, how much deposit with you need, and how will you service the monthly repayments?
Whether you should re-mortgage your UK home to release equity. The costs that will come along with buying the property (taxes and fees etc) Your maximum purchase price, including taxes and fees. The cost of maintaining the property. What other costs are involved in buying a Spanish property? The costs involved in buying a property in Spain will vary depending on whether the property is a new-build or a resale, the actual purchase price itself, and whether you are buying with a mortgage. As a general rule of thumb, you should allow 12 -15% of the purchase price to cover all taxes and fees. These include:
For a resale property, transfer tax (ITP) will need to be paid. In Valencia this is levied at 10% of the purchase price (subject to a minimum cadastral value of the property).
Notary fees & Land Registry fees – generally between €500 – €1,000
Independent lawyer fees – €1,000-€2,000
Agency fees – Real Estate Agencies in Spain charge 3% of the purchase price with a minimum of €3,000
If you are buying with a mortgage – Valuation fees (around €350), stamp duty (1.5% of the mortgage deeds) and a lender’s commission (typically 1% of the capital loans)
New-build properties are subject to VAT of 10%, instead of ITP. Stamp duty is also paid for a new-build, 1.5% of the purchase price.
In addition to these extra costs, as a nonresident you will need a tax identification number (N.I.E – Número de Identidad de Extranjero) and a Spanish bank account in order to buy a property. The NIE is issued by the General Directorate of the Police, and must be used on all tax returns and communications addressed to the tax authorities. This NIE should be processed before completion and you cannot buy a property in Spain without an NIE.
The biggest mistake that you can make is failing to realise the impact of exchange rates on the final purchase price. When you buy a property in euros, you have to agree to purchase a property without knowing the total purchase price – unless you have enough euros in Spain to purchase it. The exchange rate you receive when you transfer pounds in euros will impact that actual cost of the property – and this process is often overlooked, despite the fact that you can save or lose a lot of money through this transfer.
The price of currency fluctuates second by second and we recommend getting in contact with a currency exchange specialist even before you find a property.
Fixed Forward Currency Contract is a binding contract that allows you to fix the currency exchange rate for a future date. For example, if you are thinking of buying a property in 6 months time but you feel you might lose if the currency exchange rate goes against you, you can sign a Fixed Forward contract at the current rate for the future date you have in mind. When it comes to exchanging the funds at your specified date in 6 months, the exchange will be executed at the rate of the contract, which will ensure that you are not affected by any movements in the currency markets. The Fixed Forward contract will be useful for you to budget for the property purchase, however, you could lose if the exchange rates move in your favor as you would be bound by the rate of the contract. Also, even if you decide not to buy a property, you will still need to exchange the funds as the contract is binding and there might be penalties to break it.
Flexible Forward Contract is a variety of the Fixed Forward but it allows you to exchange the funds even by small amounts any time before the specified date in the contract. This could be very useful if you are going to pay a mortgage in euros and would like to know exactly what you will be paying every month.