Our trusted friends at Fluent Finance Abroad recently discussed the benefits of taking a Spanish mortgage despite the drop in the pound and Brexit. Below they outline an example of how a Spanish mortgage may be a better solution for you.
Fluent Finance Abroad is a long-established firm of independent mortgage brokers based in San Pedro, Marbella and they have agreements with all of the major lenders.
If you would like to speak to one of our financial advisors for more information, please do not hesitate to get in touch! Simply complete the enquiry form here, and a member of our team will be in touch. Or alternatively, call 01202 971614 and our team can help you!
The status of Spanish mortgages post Brexit
“If you are being put off buying a Spanish property because of the drop in the value of the pound you need to read this carefully.
You may feel that property prices in Spain will be affected by fewer British buyers coming into the market, although it is important to bear in mind that there are still many nationalities eager to purchase here, in particular, French, Belgian, German, Scandinavian, Eastern European / Russian and Middle Eastern and we even have buyers from Australia and North America getting involved in the Spanish property market.
This means that prices are still, in our opinion on an upward trend and there seems to be no evidence that this is going to change anytime soon. We see prices still increasing in Spain.
As the value of sterling has dropped by 18% against the Euro since the Brexit referendum on the 23rd June 2016 we thought it would be a good idea to try and explain how using a Spanish mortgage to purchase a property in Spain or any other EURO denominated property can be a very good idea.
The rate of exchange on the 22nd of June 2016 was around the 1.31 mark and as of 23rd October 2017, we see sterling has dropped to 1.11.
We speak to many real estate agents that specialise in selling to British based buyers of Spanish property and the feedback we get is that the drop in sterling is not really having an effect on the amount of enquires they are receiving but it is having an effect on a number of their clients actually taking the plunge and purchasing the property of their dreams in Spain.
At FFA we constantly keep an eye on how our market is changing and study ways in which we can use the tools at our disposal to give our clients an advantage given the state of market conditions at any given time.
Hence we are now finding that savvy British buyers are not being put off buying property in Spain as they are taking advantage of the availability of non-residents Spanish mortgage lending to facilitate and hedge against the low sterling value and buying a property using a Spanish mortgage.
Here’s how it can work
Mortgages in Spain are expensive to put in place. However even allowing for the cost of setting the mortgage up, in the long term clients will potentially greatly win out by taking a Spanish mortgage now whilst the exchange rate is so low.
If we take the example of a client who is going to purchase a property for 300’000€. If they buy in cash with all taxes and fees added to the price they will pay a total of approximately 337’500€ for the property. At the exchange rate as of 23rd October 2017 of 1.11 the client would need to transfer £304’054 to purchase the property in cash.
Assuming the client took a maximum 70% Spanish mortgage on the property the amount they would need to pay for the property would increase to 345’000€ to cover the extra bank fees or £ 310,810 @ 1.11.
A 70% mortgage would be 210’000€. (This reduces the amount they need to transfer by £189’189 @1.11 to the £, meaning they need to transfer a total of £121,621 instead of the full £310,810 at this stage in the buying process)
Once Brexit has completed (or cancelled depending who whose opinion you agree with) and things have settled back to a degree of normality in 2-3 years time the exchange rate should recover to around the pre Brexit rate of 1.31 to the £. At this point, the client would need to transfer an amount of £160’305 to clear the mortgage completely.
This makes no allowance for the amount the client would have paid off the mortgage during the time they had it. Even taking into account the extra 7’500€ paid in Spanish mortgage set up fees the client has still managed to save themselves £28’884 on the price of their property by taking advantage of the poor exchange rate.
It is important to point out that one of the main advantages of a Spanish mortgage is its flexibility when it comes to making early redemption payments of the loan amount either partially or in full. The fees to reduce the mortgage or to cancel the entire mortgage are very small and so you will have a great deal of flexibility to reduce the mortgage when the exchange rate goes in your favour. For example, if you reduced your Spanish mortgage by €10.000 in the first five years, the charge would be €50 and after five years this is reduced again down to €25 for every €10.000 you reduce the mortgage amount by.”
If you would like to discuss the Spanish mortgage market with us, we would be delighted to have a telephone call to inform you of all of your finance options and to tailor an offer specific to your needs. We look forward to hearing from you. Please get in touch with our friendly team! Complete the enquiry form here or call us on 01202 971614.