Buying in Spain does not need to be complex, but it can often be confusing for foreigners due to the language barrier and differences in the legal and tax systems. Finding a good lawyer will make the process a lot more straightforward. Ideally, you need a lawyer or solicitor who speaks both Spanish and English (or your native language) and is accustomed to the needs of international buyers.
By law, you do not have to hire a solicitor when you buy property in Spain. But for a comparatively small fee, it can be well worth it to save the difficulties of bureaucracy in a foreign country. A solicitor can save you money, time, and stress. We always recommend hiring a solicitor, so ask friends and other expats in your area for recommendations.
How to calculate your budget
Working out how much money you have available to you has to be the first consideration when planning to buy a property. Eye On Spain offers a handy buying cost calculator.
Once you know how much you can afford, you can ignore any areas or properties that are too pricey to save yourself the stress of falling in love with a home that is above your range.
Consider how much you have at your disposal and calculate in an estimated 10-15% for fees and taxes. If you need a mortgage, make sure you have the cash available for monthly payments and the additional costs of maintaining a property.
You will have to open a Spanish bank account if you plan to apply for a mortgage from a Spanish lender and to pay various other ongoing fees.
To open an account, most banks will require:
- Photo proof of ID
- Proof of employment status (e.g. a work contract, pension confirmation, unemployment documentation)
- Proof of address for the last three months
- Número de Identificación de Extranjeros (NIE)
Make sure you do your research before opening an account, as bank charges and services offered vary greatly.
Additional costs of buying a Spanish property
You will be liable for taxes and fees on completion of a property purchase, many of which differ depending on the region. You should factor at least 10-12% of the property’s value into your budget for fees and taxes.
Additional costs are:
- Notary costs, including the title deed tax and land registry fees (1-2.5%).
- ITP or transfer tax (8-10%) – For resale properties only. This tax has to be paid within 30 days after signing the title deed.
- Stamp duty (1.5%) and VAT (10%) – This applies when a property is sold for the first time, or in plot of land transactions, in which case VAT is 21%.
- Municipal plusvalía tax is a tax based on the increase in land value since the last time the property was sold. This is usually charged to the vendor but at times it is negotiated to be the buyer’s obligation.
If your seller is not a resident of Spain, you as the buyer will have to pay 3% of the purchase price to the tax office to cover their tax obligations. This does not affect the how much you pay in total, it simply means the seller receives 97% of the funds. Note that estate agent’s fees are normally paid by the seller.
Cost of living
The cost of living in Spain has gone up in recent years. Typical expenses will vary depending on the town or city where you plan to live, whether you have school-age children and if you prefer to shop in large supermarkets or use small local shops.
Numbeo.com is an excellent site to find recent figures for all your basics, including daily grocery essentials, to petrol costs and household utilities.
How to arrange a mortgage
You can take out an overseas mortgage through a lender in your home country or arrange one through a Spanish bank.
Getting a mortgage in Spain
If you are a non-resident who pays taxes outside of Spain, the maximum amount of mortgage you can borrow is 60-70% of the purchase price. Usually, banks will offer variable or fixed-term contracts for a maximum time of 20-25 years. Interest-only mortgages are not common in Spain.
Applying for a mortgage is similar to most other countries, and usually takes about 6-8 weeks. It is best to talk to a broker who can arrange a mortgage quote. You will need to ‘sign up’ for this service by paying a refundable fee. The broker will help you complete the application. Once the broker confirms the mortgage is approved, you will get an official valuation of the property. As long as the valuation is higher than the amount of money asked to be borrowed, the completion process can begin.
The cost to set up a mortgage is around 4-5% of the amount borrowed.
Once you have found your dream property, it is usual practice to pay a small deposit, generally between 3,000 and 6,000 euros, which counts towards the final price. At this stage, you will sign a ‘Reservation Contract’. Be sure your solicitor checks the contract before you sign. You are not committed to purchasing the property at this point, merely reserving it, and taking it off the market.
Once the full purchase contract is arranged, you are liable to pay around 10% of the property price, making your intention to purchase clear. You are now bound to buying the property.
Some questions to ask before paying any money
These questions are not as complicated as they sound – you, your estate agent, or your lawyer can easily obtain this information from the Land Registry.
- Does the seller have the right to sell the property?
- Is planning permission in order? (Particularly important if it is a new build)
- Are there sitting tenants?
- Are there any building restrictions if it is a plot?
- What is the cadastral value (the council’s appraisal) of the property? This lets you know how much purchase tax you have to pay.
- If the property is new or bought off-plan, is there insurance in place in the event of structural issues?
- Is there any money owed against the property, i.e. a mortgage, court judgements or legal actions?
Do not underestimate the influence that currency exchange rates have on a property purchase abroad. Fluctuating forex rates can have a big impact on the price you pay for a property.
We advise that you get in touch with a currency exchange specialist for information. They can help you lock in an exchange rate for a later date, so you know exactly how much you will pay for your overseas investment.
Choosing a notary
As the buyer, you have the freedom to choose which notary to use, but it is best to use someone local as you will have to visit their office in person unless you use power of attorney.
A notary will not tell you what is in your best interests, they will simply check the documentation is lawfully binding. The notary will not usually be involved until the completion date when he will carry out a few necessary checks, supervise the signing of the title deed (or Escritura), and possibly register the property.
If you plan to purchase a communal property, make sure you check if any rules might stop you from letting the property.
Living abroad can be complex when it comes to financial affairs. You could be entitled to tax-free deductions, so it is beneficial to find an accountant or Gestor to help you deal with the bureaucracy and apply for the NIE and help with your annual tax return.
You will need to tell the government department in your country that you are moving abroad. Understand where you stand concerning tax laws for pensions and additional income.
Tax residence in Spain is a complicated subject. However, while you may have to declare tax in both Spain and your own country, double taxation treaties will usually offset one payment against the other, meaning you will not be taxed twice.