As is well known, the British citizens occupy the first place among foreign buyers of property in Spain. So, for several years, they rank the top among foreign investors in Spanish real estate. Special preference is given to the resort area of the Costa Blanca, where the best price-quality ratio is traditionally maintained.
In 2019 investments by the UK citizens in real estate in Spain accounted for almost 15% of all other foreign investments. At the same time, almost 400 thousand Britons live permanently in the country, about 1 million are owners of Spanish property, and about 20 million British residents visit the country as tourists. These facts confirm that no matter what, the people of the United Kingdom are not ready to say goodbye to all privileges of living in this sunny and hospitable country.
Advantages of a mortgage in Spain for the British citizens
At the same time, in 2018-2019, despite the problem of the UK’s exit from the EU, the demand for English real estate continued to remain stable. Many wealthy buyers sought to purchase local apartments through a mortgage loan. According to leading experts in this field, the cost of property in London grew between the end of 2019 and the beginning of 2020, and this growth ranged between 8% −14%.
Below we will try to consider the advantages of a mortgage in Spain over the terms of a mortgage in the UK. To do this, we will first highlight the main trends in the British real estate market in 2020:
- First, buyers will face greater difficulties due to rising prices and insufficient supply. It will probably become more challenging for them to save up for a down payment.
- Mortgage interest may rise, although only slightly. However most likely, it will remain acceptable for most buyers.
- The weakening of the national currency of the UK due to BREXIT may make the market more attractive to foreign investors who have been waiting for the right moment for profitable investments and will now compete with the British in the field of demand.
Since the beginning of this year, many property owners who previously planned to sell their housing either have to wait for the end of the restrictive measures related to COVID 2019, or postpone transactions to the end of the year, hoping that the price growth will continue and, consequently, they will benefit more.
According to the data of the portal numbeo.com for Spain and the UK in 2020, by purchasing property with a mortgage with a view of renting, the following basic indices should be taken into account:
|price to income ratio||9.99||9.68|
|mortgage as percentage of income||68.06%||60.77%|
|loan affordability index||1.47||1.65|
|price to rent ratio – city centre||27.52||22.18|
|price to rent ratio – outside of centre||24.72||19.39|
|gross rental yield (city centre)||3.63%||4.51%|
|gross rental yield (outside of centre)||4.04%||5.16%|
If the country indices differ slightly in the above table, then the cost of certain real estate items differs significantly:
Buy Apartment Price, UK:
- Price per Square Meter to Buy Apartment in City Centre – 4,386.00 £ (4,934.69 €).
- Price per Square Meter to Buy Apartment Outside of Centre – 3,112.06 £ (3,501.38 €).
Buy Apartment Price, Spain:
- Price per Square Meter to Buy Apartment in City Centre – 3,105.20 €.
- Price per Square Meter to Buy Apartment Outside of Centre – 2,062.62 €.
Thus, we see that with a certain amount of money, the English can afford property in Spain of better quality, a larger area and for less money.
If you look at the dynamics of prices in recent years, starting in 2011, after the beginning of preparations for the UK’s Exit from the European Union, purchasing activity of the British fell slightly, but a year later it started to grow again. And at the end of 2019, it decreased slightly again.
This was mainly due to the fall in the British pound, which was observed in 2016. But by the end of 2019, the British currency showed increase of more than 6% and continues to grow gradually.
Early in the year 2020, the crisis of the pound and the fear of a «hard BREXIT» have passed and the British are returning to previous indicators in purchasing real estate in other countries, including Spain.
Conditions to access a mortgage in Spain for the British
In order for the UK citizen to get a mortgage with a Spanish bank as a Non-EU resident, it is required to:
- provide a set of duly completed documents;
- confirm capacity to pay;
- choose a loan term from 5 to 30 years;
- choose a loan rate – fixed, variable or mixed;
- conclude the contract of property insurance;
- conclude a life cover insurance contract for the buyer.
The average mortgage rate in Spain will be 2.8-3.2%. Maximum amount of the housing unit’s value will be:
- up to 100% for the Spanish residents;
- up to 70% for the EU residents;
- up to 60% for the Non-EU citizens.
Taking into account taxes and commissions, the cost of property on the secondary market will be about 13-14% of the cost of housing and 2% more in case of a new building.
The advantage for the Non-residents of Spain is that they do not need a guarantor for mortgage registration.
What else will impact the conditions to access a mortgage in Spain that will become clear after the conclusion of relevant trade agreements between the countries, which should be implemented by the end of this year. In general, as for the real estate market, it is also difficult to make accurate forecasts. This will depend on how volatile the UK currency turns out to be, what property taxes will be imposed on the British people as non-EU residents, and how much more difficult it will be movements between countries.
Now definitely known that one paragraph of the agreement confirms the visa-free entry for the British citizens to the EU for 90 days. The exact amount of the tax rate for the purchase of real estate is not yet established, while the income tax rate for the British Non-EU residents is known, its value will be 24%, instead of the previous 19%.
Otherwise, the forecasts for the opportunities of the British regarding mortgages in Spain are quite positive. Even if the British currency starts to fall in the future again, it is more likely that the English people will decide to transfer their assets to euros or invest in promising real estate, including Spanish property.