WHAT ARE THE CHARGES WHEN TAKING OUT A MORTGAGE & PURCHASING A PROPERTY?
Many first-time buyers in Spain are not aware of the charges involved when purchasing a property and should realize that the costs can be significantly higher than in the UK. As a general rule of thumb, we suggest allowing between 10 and 11% of the purchase price to cover all fees and taxes.
What are the different types of charges?
These vary from taxes and legal costs to bank and valuation fees (see example below). The largest expense will be transfer tax, which is set at 7% of the purchase price declared in the deed (the “Escritura”). In Spain, the price declared in the Escritura is often lower than the actual price for which the property changes hands. The reason for this is that the buyer and seller agree to reduce the declared price in order that they both pay less tax. Stamp duty and the ‘Bank Opening Fee’ (see section on bank charges) are also significant expenses.
Buyers should find out whether the estate agent’s commissions are included in the purchase price. If not, this will also be an additional expense to take into account.
An example to illustrate the effect of charges on a property purchase of €150.000 (declared price of €130,000) with a mortgage for €100.000:-
Charges relating to the property
Transfer Tax 9.100
Notary Fees 500
Land Registry Fees 220
Legal Fees 1.750
SUBTOTAL 11.570(B)
Charges relating to the mortgage:
Stamp Duty 1.500
Bank Opening Fee 1.000
Land Registry Fees 210
Notary Fees 500
Property Valuation 220
Broker Fee 495
SUBTOTAL 3.925
TOTAL 15.495 In this example, the total fees work out to be 10.33% of the purchase price.
As fees can vary from one purchase to another, we have used figures that we feel are of a typical mortgage. We are aware these figures may be higher or lower than this.
Do all banks have the same charges?
No. All banks charge a commission referred to as the ‘Bank Opening Fee’, which is a percentage of the amount borrowed and varies from bank to bank. It will normally be between 1 and 2%, although it can be lower depending on the clients circumstances. The banks tend to charge an opening fee nearer 2% for self-certification mortgages, where no income is declared and if the property is built on rustic land. Buyers should also be aware of other charges such as redemption penalties, where the bank charge if you pay the mortgage off early, and also the charges for maintaining the current account from which the mortgage payments will be taken.
How do I keep the charges to a minimum?
We recommend you see an independent mortgage adviser to ensure they have researched the market to find the best deal, which means taking into account all fees, but especially the bank opening fee. A difference of 1% in the opening fee when borrowing €100.000 would mean a difference of €1.000 in your pocket.
Also, check the fees charged by your mortgage broker. Like bank fees, these can vary considerably and could range anything from €500 to €1.500 or more on a similar level of borrowing (e.g. €100.000). Check out how independent these brokers are and that they are not just using the banks that pay them the highest commissions, as normally this means you are not getting the best deal. You also need to ask them if they will refund any broker fees you pay in the event that they do not find a suitable mortgage.
Finally, you should think carefully about choosing a good lawyer. The quality of legal advice is not determined by the level of fee. You will normally find that a good lawyer’s fees are still competitive. Some clients who are conscious of keeping their costs to a minimum will often ask: “Do I really need a lawyer?”. The answer, of course, is a resounding “Yes, you do!”. Appointing a good lawyer could save you thousands in the long-term, for example, if there is an underlying problem with your property that you are not aware of.
Summary
As you can see, charges are dependent on the bank providing the mortgage, as well as the advisers and broker you work with. Some time spent researching the market can save you a lot of money at the outset and also for the duration of the mortgage. We believe customers want transparency with respect to charges, but many feel the banks (if they deal with them directly) and/or brokers did not explain the charges properly to them, meaning the house purchase became far more expensive than anticipated.
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