You could benefit from borrowing money from the bank to buy a property. Even if you have the cash to put down on a property, it can be more efficient to finance it partly with a loan, whether it's your holiday home, or an investment property. After all, interest rates remain low, and in most countries, the rate you'll pay on a mortgage is significantly below the rental yield you can expect from renting a property. Read more about some reasons that a mortgage might be the right choice for you.
Getting a mortage as a foreigner in Spain and Portugal is not always an easy task, as the bank requirements might differ from your home country. Here is a case study of a buyer in the UK looking to purchase a holiday home in Spain, and how he got a mortgage.
Case Study: A UK landlord with income from property rentals
A landlord in the UK is looking to purchase a holiday home in Spain. Although his financial profile is excellent, his financing applications to Spanish banks had been declined as his sole income was from property rentals. A proportion of his rental properties are owned by his limited company, and the others are owned directly by the client. He was hoping to secure a 70% LTV (loan-to-value) mortgage over a 20-year term. The deadline for completion was fast approaching.
Although Spanish banks do consider income from rental properties, the general view on property investment revenue is that it’s an unstable income source. However, not all traditional lenders view rental income in the same way. Some will use a percentage of the rental income or deduct tax before calculating affordability. Others look at gross income and some will assess the net worth of assets based on the proportion of equity in each property.
The challenge here is to convince the financial institution that the client’s future income is stable.
The occupancy turnover was considered, the total assets & liabilities and the recent net profit annual statements for the properties owned by the limited company. They found that the client retained a healthy profit each year.
A detailed report for each property was created, which included the market value, any outstanding mortgages, and date(s) of purchase, and allowed the broker to present the client’s income in a straightforward and transparent manner.
Within a week, the client received a mortgage approval for the full amount required to complete the purchase of his beautiful new holiday home. The UK landlord was very emotional that even after they had lost all hope, with the right mortgage specialist, his lifetime dream became reality – proof that you can get a mortgage in Spain!
When you already have one income-producing property, it can be easier to apply for a mortgage in a country as you have proved to the bank that you're a good client.
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*Mortgage Direct is regulated by the Bank of Spain, company registered in the BoS's Register of Real Estate Credits Intermediaries under number D108.