How can I finance my property in Mallorca?

Mallorca’s banks offer good conditions – we explain to you what to be careful of

There is no doubt: Mallorca is more popular than ever for a second home, as a property on the island is a worthwhile investment which, according to the continuing positive forecasts, will gain in value every year. The question arises, however, what is the best way to finance my property in Mallorca?

The property can be financed through a bank in Germany or in Mallorca, with a private loan provider or by cash. For those who are able to pay cash it is, of course, much simpler, saves interest, and makes the purchase of the property speedier and less complicated.

Banks in Mallorca most likely to finance a property for foreigners are:

  • Santander
  • Bankia BBVA
  • Sabadell
  • La Caixa
  • Banca March
  • Bankinter
  • Abanca
  • Ing Direct
  • Targobank

 

Branches of the Deutsche Bank in Mallorca are also a possibility. When financing with a local Mallorcan bank, however, there are some differences compared with German real estate finance insititutions.

A property on the Spanish island is a worthwhile investment.

 

Financing through a bank in Spain

A certain amount of equity is always necessary as foreigners are allowed to finance their property up to a maximum of 70%, compared to Spaniards with 80%. Finance approval is easiest when the purchaser can provide at least half of the price of the property plus the incurred costs (at least 10%) himself.

Decisive is, of course, the amount of the credit and the length of the repayment time. Normally loans are approved under the circumstances that the financed amount is to be repaid within 65, maximum 70 years. The base interest rate is also orientated around whether the purchaser is a Mallorca resident or a non-resident.

Good times for financing

The most important difference between Germany and Spain, however, is that the interest rates in Spain are variable as they are linked to the Euribor. This is the interest rate for fixed-term deposits in euros which are traded between banks (currently Euribor + 0.90-0.99% is calculated by banks with a time period of 30 years).

This means that the interest, ie. the monthly payment, can change which can be an advantage or a disadvantage. Normally the interest rate changes only minimally, if at all, and due to the long low-interest period the situation at the present time is favourable for borrowing. If the interest rate falls the repayable amount will also reduce, but if it increases it will accordingly become more expensive. Normally, however, a protection clause is built into the mortgage so that the cost can not become prohibitive.

In any case it is important to compare and to take competent advice before deciding. In Germany the situation is different – the German conditions fix the interest rate for at least ten years, so that every month the amount stays the same. If you are a good customer of your German bank, and may be able to offer real estate in Germany as security, or your bank itself offers real estate in Mallorca then this kind of finance would also be a secure way of financing.

How can I get a mortgage? 

Regardless which bank you approach the documentation and the finance repayment will be scrutinised exactly, including from where the equity originates and from what source the loan will be repaid. Then it takes one to two weeks until the customer is informed whether or not the mortgage has been approved. In the case of a positive response it is then obligatory that a home insurance and/or a life insurance be taken out.

An account must, of course, then be opened at the bank concerned and for this – and also generally when purchasing real estate in Spain – a Spanish tax number (the NIE) must be applied for with the immigration authorities. Without this it is not possible to open a bank account in Spain, conclude a sales contract, or pay taxes. Just as important as the NIE is support from a lawyer or notary, as only in conjunction with a notarial purchase deed can the new owner be entered into the land register.

Should you have discovered a suitable property, but have not yet finalised the finance, it is usual to complete an option-to-purchase contract. The purchase of the property and the signing of the finance documentation normally take place on the same day in the presence of a lawyer or notary.

Positive nowadays is that many lawyer’s offices and most Mallorcan banks have multi-lingual employees, not unusual as last year around 30% of real estate sold in Mallorca was purchased by foreigners, with Germans continuing to be the largest group.

Unlike in Germany, interest rates in Spain are variable

Take competent advice

The chances are good and the interest rates low, so why wait? But even so it is advisable to seek legal advice, especially in the case of house purchase. We at Porta Mallorquina not only offer a wide-ranging choice of desirable properties, but are also at your service with advice and support.

We work together with the best legal experts and can recommend the best form of finance for you, the customer. We look forward to your visit!

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