Mortgage repayments Spain

Feeling the pinch with your Mortgage repayments?

  1. You bought your property a few years ago and spent a bit doing it up.
  2. The rentals were meant to cover the mortgage which they nearly did, but now the interest rate has more than doubled in the time you have owned it, owning a property in Spain isn’t what it was supposed to be.
  3. You want to move house but cannot sell your current property without dropping the price too much?
Sound like you?

The recent hikes in interest rates have had a slowing down effect on the economy in general and on the property market in particular (which of course was the whole intention). It was great when the underlying mortgage rate was lower than 2.5% but now having risen to 5% and above many are starting to feel the pinch and struggling to keep up payments.

On the brighter side (just) the expected crash as yet has not arrived. Sure the buyers are taking a lot longer to buy a property, and are now not willing to accept estate agent speak quite so readily, nor inflated prices but buyers are still out there. Good value property is selling, and there is still competition for “Hot Property” its just that such properties, offering excellent value for money, are a rarity. But most buyers are bargain hunters and want a reasonable price.

Oh where are those halcyon days when just putting a se vende sign on your window would bring a hoard of potential buyers and you could name your own price (did such days actually exist then?)

However what if you need to move now, for whatever reason but cannot sell your house at a decent price? Even if you wanted to rent out – the rentals don’t cover the mortgage, so it isn’t viable. Or is it? Up until recently the only real options you had was to sell at a lower price, rent and accept a loss or stay put. Until Now of course.

House change mortgages – what are they?

A number of Spanish banks are offering what they call a “house change” mortgage. This means you can buy your next house without having to sell you existing house immediately and therefore could possibly ride out the storm and get a better price later on. It is also useful if for example you live here and want to renovate a property but need a year or so to do it before moving into your new place.

How does it work?

Very simply the bank will lend you up to 80% of the value of your current home and up to 80% of the value of the new property – depending on your circumstances. The existing mortgage is on interest only (and at a very low interest rate) which reduces your monthly repayments to a very manageable level. The new property is on a normal capital repayment mortgage, but also on a very low rate.

What’s more the interest on the first property (that you are selling) is paid once per year, so you have plenty of breathing room.

And if that wasn’t enough having such a low mortgage on the property is a great selling point as the potential buyer can take over the existing mortgage with no set up fees, a great benefit to both you and the new buyer. So instead of advertising your property at €150,000 you could advertise it for €250 per month – cheaper than renting

What is the catch?

Sounds simple doesn’t it?

Actually it is. How the bank does it is by buying cheap Money from other currencies and exchanging it in to Euros. They then lend this to you at a reduced rate because the rate is much lower. Note that the currency you borrow the money in is Euros not the underlying currency – which means there is no exchange rate risk to you.

They then charge you the rate according to the currency. However if the rate of that currency rises then you can easily change it for another currency – at no risk to you and at no charge – therefore reducing the interest rate you pay.

In essence the idea has been around for many years. However the risk before was that you borrowed in one currency and ran the risk of currency exchange rates so could end up owing more than you borrowed. However this particular type of mortgage is converted into Euros and you borrow Euros, so the capital will only ever be what you borrowed, removing any such exchange rate risk.

So now if you want to move house you have a further option than take it or leave it and if you just want to refinance your house to get a better deal or release equity, that is also possible too.

Benefits at a glance

  1. Mortgages or remortgages from a mere 2% per annum with up to 2 years interest only,  greatly reducing your monthly payments
  2. Up to 30 years to pay
  3. Payments made every 3 months on second property and once per year on the first property
  4. Loan to value of up to 80% on both properties allowing you to purchase the second property without additional funding
  5. Ability to switch to a more favourable rate if the interest rate rises, without penalty as often as you like – which means you always get the best deal for you
As an example. If you borrowed €150,000 you would pay back as follows

Year 1 and 2 - €3,000 per year (€250 per month)

Subsequent years (assuming 30 year mortgage) €6,646 per year (€554 per month)

So there you have it. There is now a solution to your property woes which won’t cost you the earth.
Please note that I am neither a mortgage advisor nor financial advisor and will merely provide you with further information as to where you can obtain such mortgages.


Additional information