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How much can I borrow?

The level of borrowing depends upon a number of different factors. Let´s consider each in turn:
  • Afffordability

    Obviously, any lender must be sure that you will be able to repay the debt that is incurred. Therefore most banks have a fairly rigorous application procedure, particularly for buyers seeking high loan-to-valuations, which requires your proof of income, banking details and credit history.

  • Loan to Valuation

    Depending upon the affordability factor and subject to status, banks in Spain will lend up to 80% of the purchase price or valuation of the property.

    For many years and while the Spanish building boom was in full flow, the Spanish property market was reporting price rises of over 10% per year, and sometimes over 20% per year. With huge demand and a dearth of homes in popular locations, most buyers chose to purchase off-plan, leading to the scenario in which the final valuation of a completed Spanish property would often be far higher than the actual purchase price paid.

    At the time, most of the Spanish lenders turned a fairly blind eye to this, and promptly offered mortgages to non-resident buyers of up to 70% - 80% of VALUATION, not the purchase price, sometimes equating to mortgages of over 100% of the actual price paid. This often supplied buyers with sufficient capital to also pay for purchase costs and furniture!

    This was one of the reasons why so many investors were buying off-plan properties in Spain during the peak years. Of course, the market has returned to a period of more sedate growth and steady prices, and the credit crunch has made banks reluctant to expose themselves to high risk deals. On a long-term basis this should be good news for the Spanish property market in general, as it means that there is little chance of it ´over-heating´ (i.e. overseas buyers obtaining 100% finance on 2nd homes), and that non-resident buyers will need to invest cash into the purchase of their property.

    Another issue has been the tightening up by Spanish banks on lending against the property valuation instead of the purchase price. In certain areas of Spain (particularly those areas in which past transactions have been investigated) the banks are making doubly sure that mortgages are only issued on the purchase price of the property, and not a higher figure. However, it is virtually impossible to police, with some banks turning a blind eye to the instructions from the Spanish central bank, and still willing to lend on the valuation figure.

    Typically, most banks have the facility to lend up to 80% of the purchase price (or valuation), but most are more comfortable in agreeing to 70% or 75% levels of borrowing. Interest-only facilities are also available across the range.

    Self-cert products are normally only available for up to 60% of valuation.

    Naturally, the more money you want to borrow, the more stringent the criteria, particularly with regards to affordability.

    Don´t forget that in Spain, you also have a range of purchase costs, typically up to 10% of the purchase price. So, if you are considering borrowing 80% of the purchase price from a Spanish lender, you will not only need to find the remaining 20% of the price, but also at least a further 10% in costs.
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