Explained If you are a British buyer, most Estate Agents in Mallorca will tell you that it is cheaper to mortgage your holiday home locally than to take a mortgage in the UK for example and although this is true mid to long term, the setup costs can be fairly shocking to those who are unenlightened of them.
Unlike the UK where mortgage setup fees are fairly low, the costs of mortgaging in Spain are, rule of thumb, 3. 5 % of the amount being borrowed, for a non - occupant.
I cannot remember the number of clients who have argued this 3. 5 % with me because the bank told them it would only cost 1 % of the loan amount.Well, this is true, insofar as this is what the bank will charge you as an arrangement emolument but no the Weight Cost of Mortgaging.
So, the breakdown of the mortgage costs is typically: - 1 % layout remuneration ( on the loan amount ) - 1 % Actos Juridicos Documentados ( stamp duty on the loan risk ) - Notary Fees - Land Registry Fees - Administrative costs - Bank Valuation ( Assessment ) The 1 % layout cost is pretty standard and depending on the rest of the mortgage offer ( annual behalf rates / redemption penalties etc ) this may or may not be navigable. Expect to pay it, and if you pay less, think of it as a bonus!Actos Juridicos Documentados ( AJD ) is a stamp duty on the Aggregate Loan Risk. This is, the capital risk that the bank is taking in order to lend you the money and includes, the quota loan amount, the maximum profit they can charge you if you default, the cost of repossession ( just and court fees etc ) so can run to about 1. 6 % to 1. 8 % of the loan amount, again, depending on the rest of the mortgage offer.
Notary and Land Registry Fees are based on sliding scales in connection with the loan amount and, the number of pieces of paper! Yes, the mortgage document is printed on serialized paper which has to be notarized and archived and written into the land registry.The bank lending you the money will want an independent valuation report from their own surveyors and a normal apartment will cost in the cestuses of 0. 15 % for valuations up to around 450. 000 euros, although there are bandwidths so this is remarkably much a guide. The bank will use this value as the basis of how much money they will lend you so this has to be carried out and paid for, regardless of whether you subsequently get a mortgage offer or not.
So all in all, this is how you come to the 3. 5 % of the loan amount. Why then is it cheaper than mortgaging in the UK you ask. Well, we have to look at the whole packet for this.Typically, EURIBOR runs a lot lower than the Bank of England base good percentage so on an annual basis you are paying a lot less in gain. The usual scale applied to mortgage in Mallorca ( Majorca ) is EURIBOR +. 75 % to 1. 35 % for non residents depending on the genus of mortgage ( Capital Deduction / Advantage Only / Mixed ).
What is not immediately evident though is the Wealth Tax saving that you are making by mortgaging in Mallorca ( Majorca ). If you were to mortgage in the UK ( either using the property in Mallorca ( Majorca ) as defence which is extremely strenuous to do, or releasing equity lambaste other property in the UK ), from a fiscal point of view in Mallorca ( Majorca ), the property would be unencumbered ( the UK mortgage would not be in the Spanish Land Registry ). This means that you would be liable for the maximum Annual Wealth Tax Levy.Wealth Tax is charged on the equity in the property, which in this case would be the price you paid for it, regardless of any UK mortgage. Not only that, but, Wealth Tax is levied on a sliding scale so by increasing the equity you are moreover increasing the ratio at which you pay! So, not only are you paying less interest annually if you take a mortgage locally, you are also paying less Wealth Tax and there is a point where this saving outweighs the additional cost of arranging the finance locally somewhat than in the UK.
The additional benefit is that you still have the equity available in the UK, unencumbered against a holiday apartment or villa in Mallorca ( Majorca ).Finally, it is worth noting this. We normally try to arrange mortgages without fragmentary or complete early compensation penalties. This means that you can pay of capital, reduce the term or, when you sell or win the lottery, pay the whole lot off ( mind the Wealth Tax though! ) without incurring any fees or charges. Be careful, the bank will try and slip these in if they can!
Sebastiaan Kemna has been in the Real Estate business in Mallorca for over 10 years and runs a very successful Estate Agency in Santa Ponsa as well as a successful property portal and search site: Majorca Property and Real Estate Sales and Majorca Property and Custom Seek Mallorca ¶ 1:18 AM
