Foreigners who want to buy a property in Mallorca often consider financing part of the purchase price. After all, interest rates are still at record lows.
Daniel Pires, Managing Director of Smart Servicios® in Palma, which specializes in advising and arranging property loans with local banks, explains the best way to go about financing property.
Why not simply finance your island home through your bank back home? German banks do not finance real estate in Mallorca because they cannot secure themselves against the Spanish land register.
What is the maximum percentage of the purchase price that can be financed?
This depends on the creditworthiness and the appraisal of the property. In the case of non-tax residents, a maximum of 70 percent is financed.
What are the requirements for a mortgage?
In addition to a thorough credit rating of the mortgage holder, the bank appraisal plays the main role. For example, if the property is valued much lower than the purchase price, the bank will only approve a lower loan amount. A complete rejection of the application can result if the appraiser determines that the property was not built one hundred percent legally. In principle, Spanish banks place very high demands on the foreign borrower. As a result, the acceptance rates vary greatly depending on the bank and the credit line.
Can you apply for a real estate loan yourself as a foreigner? In theory, yes. In practice, I advise against it. In addition to language skills, you also need to know exactly which financial institution is best suited to your planned project and, above all, have plenty of time, as the response times of branch staff are very slow. You should also have experts at your side for the credit assessment and the bank report. We have specialized in these tasks for many years and prepare the credit rating documents so that the Spanish bank approves the loan more quickly.What are the advantages and disadvantages of financing with mortgages in Mallorca?
The main advantage is that the loans can be repaid in part or in full at any time on a voluntary basis. In most cases, this is even free of charge or only incurs a small fee of 0.25 to 0.5 percent. On the other hand, the variety of products is limited and only full repayment loans are offered. This means that if you agree a 10-year term, the repayment is 10 percent. In addition, the monthly installment is unusually high for German customers, as the loan is paid in full at the end of the term.
When is the right time to apply for a mortgage?
A special feature of the Spanish banking system is that the bank does not refinance a property after the purchase at the notary. The loan must therefore be paid out before or on the same day as the notarized purchase! An unencumbered property is not encumberable, which means that the liquidity is tied up until the sale!
What advice would you give to German owners who own an unencumbered property in Mallorca?
Based on developments in recent years, quite clearly: hold, hold, hold! Properties in the high-price segment are experiencing healthy demand and a simultaneous appreciation of the sales price. I recommend finding out about the possibilities of an equity release. The capital tied up in the property can be released for free use via a loan. This allows you to take advantage of the current performance and further expand your assets at the same time.
Contact person for real estate financing
at SMART SERVICIOS®
Foreigners who want to buy a property in Mallorca often consider financing part of the purchase price. After all, interest rates are still at record lows. Daniel Pires, Managing Director of Smart Servicios® in Palma, which specializes in advising and arranging property loans with local banks, explains the best way to go about financing property. Why not simply finance your island home through your bank back home? German banks do not finance properties on Mallorca as they cannot secure themselves against the Spanish land register. What is the maximum percentage of the purchase price that can be financed? This depends on the creditworthiness and the valuation of the property. In the case of non-tax residents, a maximum of 70 percent is financed. What are the requirements for a mortgage? In addition to a thorough credit check of the mortgage holder, the bank appraisal plays the main role. For example, if the property is valued much lower than the purchase price, the bank will only approve a lower loan amount. A complete rejection of the application may result if the appraiser determines that the property was not built one hundred percent legally. Spanish banks generally place very high demands on foreign borrowers. As a result, the acceptance rates vary greatly depending on the bank and credit guidelines. Can foreigners apply for a real estate loan themselves? In theory, yes. In practice, I would advise against it. In addition to language skills, you must also have precise knowledge of which financial institution is best suited to your planned project and, above all, have plenty of time, as the response times of branch staff are very short. You should also have experts at your side for the credit check and bank appraisal. We have specialized in these tasks for many years and interpret the creditworthiness documents so that the Spanish bank approves the loan more quickly. What are the advantages and disadvantages of financing with mortgages in Mallorca? The biggest advantage is that the loans can be repaid in part or in full at any time on a voluntary basis. In most cases, this is even free of charge or there is only a small fee of 0.25 to 0.5 percent. On the other hand, the variety of products is simple, with only full repayment loans being offered. This means that if you agree a 10-year term, the repayment is 10 percent. In addition, the monthly installment is unusually high for German customers, as the loan is paid in full at the end of the term. When is the right time to apply for a mortgage? A special feature of the Spanish banking system is that the bank will not refinance a property after it has been purchased from the notary. The loan must therefore be paid out before or on the same day as the notarized purchase! An unencumbered property is not encumberable, i.e. the liquidity is tied up until the sale! What advice do you have for German owners who own an unencumbered property in Mallorca? Based on the developments in recent years, quite clearly: hold, hold, hold! Properties in the high-price segment are experiencing healthy demand and a simultaneous appreciation of the selling price. I recommend finding out about the possibilities of an equity release. The capital tied up in the property can be released for free use via a loan. This allows you to take advantage of the current performance and further increase your assets at the same time. Your contact person for real estate financing at SMART SERVICIOS® is Maria Gutmann." target="_blank">www.smart-servicios.com
