Once you have chosen your ideal property you will need to pay a reservation fee, which is normally €3.000 - €6.000 (deductable from your 10% - 30% deposit). This is extremely important because it not only takes the property off the market, but it also freezes the price. The reservation fee is normally paid either by credit card or bank transfer directly to the developer.
At the earliest possible time we recommend that you apply for an NIE number (a foreigner's identity number). This number is necessary when carrying out any financial transaction in Spain such as a house purchase, taking a mortgage or even opening a bank account
The numbers are issued at the National Police Station in the town where you are purchasing the property. Unfortunately, there are few hard and fast rules with regard to making the application as each town has its own rules. What you will definitely need is to complete the application form in duplicate and appear together with your passport and a photocopy of it at your nearest National Police Station.
Often, your estate agent will assist with this formality and they generally know the procedure in the area where they operate and will give you further guidance as to what additional, if any, documents you need to present.
Choosing a Lawyer Because property law in Spain is subtly different to the UK & Ireland, you will need to enlist a Spanish lawyer to help with your purchase. He/She will ensure that you are making a sound and legal purchase. We have a portfolio of recommended lawyers. Firstly, your lawyer will commission a search. The searches will include the following:
• The boundaries and the legal description of the property
• The name of the person or companies listed as the owner of the property
• That there are no existing debts or mortgage charges against the property
• Building regulations have been observed and land has been properly designated for development
• Pending assessments for public works, e.g. storm drains
• Assessed valuation of the property so it agrees with the price paid
• Ensure that both water and electricity supplies are available
• Once the reservation fee is paid, there is nothing more to do until the private purchase contract (contrato privado).
Purchase Contract And Deposit
This contract will set out in detail the agreed purchase including price, payment term, completion dates etc. and you are generally required at this stage to pay a more substantial deposit of between 10% and 30% typically.
Once this document is signed and the deposit paid the buyer is committed to paying the balance of the property and the seller is committed to transferring the ownership of the land to the purchaser.
It is important that this contract is checked by your lawyer to make sure that all your rights and the vendor's obligations are incorporated into it. Often what is missing from a contract is more important than what is included.
Your lawyer will check that the vendor is the true owner of the property, carry out a Land Registry search, ensure that the property has no debts or encumbrances (such as an un-paid mortgage) and that the building is legally registered.
If you do not comply with all the terms of this contract you may stand to lose all monies paid.
You must receive guarantees either from a bank or an insurance company for any money paid to a developer for a property under construction.
If the property is under construction you may be required to pay instalments which should reflect the stages of the building process. Bank or insurance guarantees should be offered by the Developer to cover these interim payments.
The final payment is made at the time of taking possession of the property and this transaction is recorded in the Title Deed (Escritura de Compraventa) signed before a Notary Public.
At this time, any existing mortgage should be cancelled. If you are taking a mortgage with another bank the loan amount will generally be paid directly to the vendor on completion.
Many charges and debts incurred by the previous owner can be registered against the property if left un-paid and it is your lawyer's job to ensure that you buy the property free of any encumbrance and with the paperwork necessary to register the title in your name.
Once completion has taken place certain fees and taxes must be paid.
A property can be signed for once all documents and monies are ready. For new developments the escritura is only signed once the property is complete and the keys are ready to hand over should you wish not to sell prior to completion.
Finance For Your Spanish investment Property (Mortgage / Equity Release)
When you complete on your property you will be required to pay the remainder of the value. Typically this is between 80% and 70%. Many investors look to borrow from a bank in the form of a mortgage to finance this sum. In Spain mortgages are readily available, usually obtaining a mortgage for upto 80% of the value of the property is no problem, occasionally its possible to obtain more depending on the valuation of your investment on completion. Click here for more information on .
Other investors seek to release equity in an existing property to help finance their investment property in Spain. This can also be achieved easily and you can find out more about this in our section.
Payment Of Taxes
The relevant taxes (either VAT if a new property or Transfer Tax if a re-sale property) must now be paid within a fixed period of time to avoid fines. It is your lawyer’s job to ensure that the appropriate completed forms are sent to the Tax Authorities on your behalf on time.
Once the taxes have been paid, only then can the Deeds be delivered to the Land Registry for inscription.
This is probably the most important stage of the purchase and it is vital that the property be inscribed in your name at the earliest date to protect your interests.
Once you have possession, utilities need to be contracted and this can be a lengthy and complicated process fraught with bureaucracy. It is often a better idea to have the developer, or your lawyer to make the necessary arrangements.
Making A Will
We strongly advise all owners of investment property in Spain to arrange a Spanish Will as this will accelerate and simplify the inheritance process in the event of your death
The Costs Involved In Purchasing A Spanish Investment property
As a rule of thumb, you should budget the combined total of between 10% and 12% of the purchase price to cover all the taxes and legal fees. In the Canary Islands, there are different rates of Tax (which are lower than mainland Spain), and you should ask your lawyer to give you a breakdown specifically for these islands.
The costs involved are:
Notary Fees (Gastos Notariales)
They vary depending on the value of the property and various other factors. Allow approximately 0.5% of the property price to cover these.
Land Registry Fees (Gastos de Inscripción)
These vary according to the locality, type and value of the property. They are not strictly taxes but fees charged by the Land Registry to inscribe your title.
Impuesto Sobre El Valor Añadido (I.V.A)
This is the Spanish equivalent of VAT. It is incurred when you buy from a Developer rather than the private individual. It is charged at the rate of 7% on the purchase price of all property with the exception of commercial property and plots which attract 16% IVA.
AJD (Stamp Duty)
A document tax or stamp duty which can be up to 1% of the purchase price is also levied on new property only.
There are certain costs involved in taking on a mortgage depending upon your chosen bank and the amount of the mortgage. These will be clarified to you at the time of arranging a mortgage. Bear in mind that in Spain, a mortgage is reflected in a separate Deed and therefore incurs Notary and Land Registry fees as well as certain Tax. For more information on current Spanish Mortgage options please click here.
These will depend on which services you instruct your lawyer to undertake. Normally, conveyancing fees are based on a percentage of the purchase price. Always ask for a quote before instructing your lawyer, and be sure to know what is included in the cost.
In addition to the above costs, there will be other payments made on your behalf by your lawyer such as the Land Registry search fee, bank charges etc.
After finding the property of your dreams, our agents can arrange for you to meet an independent mortgage adviser who deals with both local and international banks and can offer very competitive terms and rates.
We can also reccomend a legal representitive for your Spanish Property purchase or to help answer any of your questions then please e-mail: Legal@propertyshowrooms.com
Currency Arranging for your payments to be transferred into euros can be very expensive as even the smallest movement in foreign exchange rates can make a huge difference to the price of your new home. Using a professional foreign exchange company will give you better rate of exchange with no commissions to pay. we can recommend a company that will give you the following:-
• Superior exchange rates
• No commission
• Forward buying
• Low cost transfers
To find out more about effeciently transferring your money click here
Investors Protection All our developments come with developer's bank guarantees. .