Property purchases in Spain may generally be financed either through Spanish banks or through foreign banks. However, following the entry into force of the new Spanish Mortgage Act, obtaining financing from foreign lenders has become significantly more difficult in practice. In order to enhance consumer protection and prevent unfair lending practices, the new legislation requires, among other things, the electronic transmission of the mortgage documentation between the lending institution and the notary. Consequently, the lender must be connected to the digital platform established for this purpose.

In practice, most foreign banks have not yet adapted their systems to comply with these new requirements, making it difficult to obtain a mortgage directly from a foreign lender for the purchase of property in Spain.

As this option would generally only be advantageous for non-residents who maintain their residence and banking relationship abroad, many purchasers instead opt for indirect financing. This usually involves taking out a mortgage on an existing mortgage-free property located in their country of residence and using the loan proceeds to finance the purchase of the Spanish property.

In such cases, the entire financing process takes place abroad and the mortgage is registered in the Land Registry of the country where the encumbered property is located. The only connection with Spain is that the loan proceeds are used to acquire the Spanish property free of encumbrances. Consequently, no additional mortgage-related formalities are required before the Spanish notary.

For residents in Spain, financing through a Spanish bank is generally more advantageous, particularly where the property being acquired will become the purchaser's main residence (vivienda habitual). In these cases, Spanish banks will often finance up to 80% of the property's appraised value, while borrowers are entitled to repay the mortgage early or transfer it to another lender under the conditions established by Spanish mortgage legislation.

Required Documents

The following documentation is generally required when applying for a mortgage in Spain:

1. Land Registry extract of the property. The Land Registry extract (Nota Simple) is usually provided by the seller or the estate agent. If it is not available, it may be requested electronically from the Spanish Land Registry.
2. Latest personal income tax return (IRPF). Most Spanish banks continue to rely primarily on the Spanish Personal Income Tax Return (IRPF) when assessing an applicant's financial situation. If you have been resident in Spain for less than one year and have therefore not yet submitted a Spanish tax return, it may be necessary to provide a certified Spanish translation of the most recent tax return filed in your previous country of residence.
3. Payslips or quarterly tax returns. Employees in Spain are generally required to provide their last three payslips. Self-employed applicants will normally be asked to submit their last three quarterly tax returns (Forms 130 and 303).

Steps Prior to Mortgage Completion

The mortgage application and property purchase process generally follows these steps:

1. Signing a preliminary purchase agreement with the seller, including a clause allowing withdrawal if the mortgage application is rejected.
2. Submitting the mortgage application to the bank together with the documentation referred to above.
3. Mortgage approval by the bank and execution of the bank's internal documentation.
4. Appointment of the notary and electronic transmission of the mortgage documentation to the notarial office.
5. Attendance before the notary for the mandatory information meeting and execution of the preliminary notarial deed (Acta Previa).
6. Final appointment before the notary with the seller and the bank to execute both the public deed of sale and the mortgage deed.

(Please note that at least ten days must elapse between the notary's receipt of the mortgage documentation and the execution of the mortgage deed.)

 

As a general rule, the bank or the gestoría appointed by the bank will be responsible for arranging payment of the purchase price and the settlement of the applicable taxes. You will normally be required to grant the gestoría the necessary authority to debit the relevant amounts directly from your bank account. The allocation of the various costs and taxes is explained in the following section.

Although some transactions between financial institutions are now completed by bank transfer, the vast majority of property purchases in Spain continue to be completed by means of a banker's cheque. In such cases, your bank will provide the banker's cheque at the notarial completion meeting to pay the full purchase price. Accordingly, your own contribution towards the purchase price, together with the funds required to cover taxes, notarial fees and Land Registry fees, should be transferred to your Spanish bank account in advance.

At the completion meeting before the notary, the sellers will usually sign the public deed of sale first. They will then briefly leave the room while you execute the mortgage deed. Once both deeds have been signed, the bank (or the appointed gestoría) will hand the banker's cheque to the seller, and you will receive the keys to the property.

The bank's gestoría will then arrange for the submission of the public deeds to the Land Registry and the payment of the corresponding taxes and notarial fees. For the purchaser, the transaction is essentially completed at this stage. The original registered title deed will normally be available approximately one to three months after completion, once registration in the Land Registry has been completed. Immediately after signing, you will receive a simple copy of the public deed (copia simple), which may be used to transfer utility contracts such as electricity and water into your name.

Our law firm will be pleased to assist you in analysing your individual circumstances, carrying out the necessary administrative formalities on your behalf and preparing and filing the corresponding tax returns. Should you require legal advice or have any questions regarding property financing in Spain, please do not hesitate to contact us by telephone or email.

Author:

María Santos
Lawyer
CEO, Partner, Legal Director
info@sspartners.es
Tel: (+34) 951 12 13 06
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