The overseas property market is thriving with increased interest in developing markets, such as Bulgaria and the Baltic States and exotic and far-flung destinations such as Dubai and Thailand. Yet despite this competition, old favourite Spain is still the first choice for British buyers looking for a holiday or retirement home and the Spanish mainland and islands account for about 60 per cent of the UK overseas market.
Our love affair with all things ‘España’ doesn’t show any signs of fizzling out. Spain remains the most popular holiday home hotspot according to research, with 51 per cent of potential overseas property purchasers saying they would choose a Spanish location. This is further reinforced by Mintel’s findings that 800,000 Britons now own a second home abroad.
When talking about the property market in Spain for UK investors, we mainly refer to the Costas – Costa del Sol, Costa Brava and Costa Blanca, for example – rather than Spain generally. 98 per cent of Brits buying property in Spain buy on the 4,964 km of coastline or not more than five miles inland. And although tainted by some stigma of years gone by, these coastal areas are now booming. The Balearic and Canary Islands are also popular places to buy and are favoured by many celebrities including Michael Douglas, Claudia Schiffer and Jade Jagger.
Spain has consistently been a good place to invest as prices have shown steady growth of about 10 per cent per annum over the past five or 10 years, and property values are forecasted to continue growing at a similar rate over the next few years. Coupled with the booming UK economy and Brits having more disposable cash than ever before, many are opting to invest in bricks and mortar abroad. Owning a property in Spain has become ‘de rigeur’.
Three reasons
People buy property abroad for many different reasons but they tend to fall into three main categories. For some it’s an emotional decision based on a lifelong dream. For others, it’s an exciting step into the unknown. Or it can simply be a financial investment.
Spain is a popular destination for numerous reasons including its close proximity to the UK, the reasonable cost of flights and the fact that 28 UK airports fly there – making it a viable weekend destination. Research also shows that British holiday makers are attracted to Spain by the weather, the ‘mañana’ lifestyle, good food and friendly locals.
As in any property investment, location is the all important factor and the prime Spanish locations have a sea view. Views of the ocean command the highest prices and Spain is blessed with almost 5,000 km of coastline. Views of golf courses are also popular and dictate the dearer prices. On the Costa del Sol, a two or three-bedroom apartment will cost about £250,000, but a similar property can be picked up for as little as £150,000 on the Costa Blanca.
Broker appeal
So, why should brokers in the UK get involved in selling Spanish mortgages? First of all, the UK intermediary market has been quite static over the past three or four years with brokers mostly just churning mortgages. As there is not a great deal of activity, brokers have looked for alternative sources of income and overseas mortgages has become a popular market to become involved in.
Spanish developers are increasingly targeting UK investors to buy property in Spain. Many of the large and respected firms such as Polaris World and Parador Properties are attracting more affluent UK investors with extensive sports and leisure facilities, including luxury golf resorts, in Spain’s popular and picturesque coastal areas.
With Spanish property developers targeting the UK and more Brits looking to buy abroad, it makes sense for brokers to be active in the overseas market. They can also earn more commission on overseas deals than they can on mainstream UK mortgages. Processing fees for Spanish mortgages tend to be in the region of 0.25 to 0.5 per cent, compared to about 0.1 per cent commission on mainstream UK deals.
Noteworthy points
A point to note is that overseas mortgages are not regulated by the Financial Services Authority (FSA). It’s therefore vital that intermediaries’ customers know they need to do their homework and research all the potential implications of buying abroad thoroughly, as well as seeking the necessary legal advice.
The added costs of buying in Spain are considerably more than in the UK. Brokers and their customers need to be aware that taxes and fees come to about 12 per cent of the purchase price and investors should budget accordingly. These taxes and fees include the Spanish equivalent of VAT which is called IVA, Spanish Land Registry fees and notary (solicitor) fees. Also mortgage arrangement fees tend to be percentage-based – rather than a flat fee – and are typically 1 to 2 per cent of the loan. Valuation fees are at similar levels to those in the UK and rise with property values.
Brokers should recommend that customers use a Spanish bilingual lawyer to ensure they receive a good title and do not inherit the debts associated with a property. In Spain, any outstanding property-related debts stay with the property when sold. A good lawyer will ensure these are cleared or accounted for before the sale is completed. Otherwise, the debt could possibly become the new owner’s responsibility on completion.
The importance of using a qualified lawyer with local knowledge and experience of acting for British customers cannot be over-emphasised when clients are buying property in Spain. An independent solicitor and surveyor are vital when buying property in the UK, and it is the same abroad.
Customers should be advised not to use a lawyer recommended by a property developer but use one recommended by their bank instead. Although it is at the client’s discretion as to whether they choose to use the lawyer proposed by their bank, if it is a requirement then customers may not be permitted to use another lawyer.
For customers, opting for a mortgage with NatWest International means they are dealing with a company they know they can trust. Our Spanish mortgage team is bilingual in English and Spanish with local knowledge to assist investors with every aspect of buying a property in Spain.
Business in brokers’ hands
Organising a mortgage with an overseas bank can be ultimately more difficult and stressful for an investor and as a result, UK lenders will continue to see a greater number of requests for mortgages in Spain, which will ultimately put more business into the hands of intermediaries.
To provide customers with the excellent service standards they expect in the UK, intermediaries need both an understanding of the Spanish market and, importantly, access to a bank with experience of dealing with British non-resident customers. There are a number of familiar UK high-street banks which have branches in Spain, but generally customers feel more comfortable having a UK-based contact.
Most Britons buying property in Spain demand similar products and services to those available in the UK. For this reason, British banks with a customer service team in the UK are best placed to provide the product range and standards of service expected by British customers.
The main difficulty most prospective buyers and their advisers experience in the house buying process is, inevitably, language and the use of different jargon, such as evaluators rather than surveyors and notaries rather than solicitors or conveyancers.
By using a UK bank with an international arm and a bilingual lawyer, most of these problems can be overcome.
As far as mortgage products go, the offering to investors in Spain is broadly similar to that offered to people investing in the UK. The main difference is that the majority of Spanish mortgages are calculated in euros.
Interest rates in Spain have generally been below those quoted in the UK for quite some time. However, an important consideration surrounding euro mortgages is that the lender will require monthly repayments in that currency. Fluctuations in the exchange rate will certainly affect the value of customers monthly repayments if they are being met from income earned outside of the euro zone and this is something the client and broker must take into account.
