Since 2009, the sale of homes by foreigners has not stopped rising, a trend that factors such as Brexit or the pandemic have slowed down: last year 10% of the sale of homes in Spain was by foreigners.
The mortgages that non-residents usually request are usually second homes, which, together with the lack of information due to not residing in Spain, makes them subject to harsher conditions.
Majorcan towns where German is spoken, or Cadiz seawalls with an English accent. This curious phenomenon has been seen more and more frequently in the last decade in Spain, when the acquisition of housing by non-residents has increased dramatically, a trend that external factors such as Brexit or the pandemic have been slowing down.
“This interest of non-resident citizens in certain areas even reached 50% of the acquisitions of second homes”, highlights Carles Solé, mortgage formalization manager at Tecnotramit.
The expert points out that, despite the decrease in these transactions due to the pandemic, “it is expected that the control and normalization of the health crisis will promote a recovery of confidence and a new increase in operations of this profile.”
According to the Association of Property, Mercantile and Real Estate Registrars of Spain, despite factors such as Brexit or the pandemic, sales by foreigners stood at around 10% in 2020, while in 2019 it was about 13%. According to this body, the main contractors of these services are English, German and French citizens, in that order.
What is the profile of the non-resident?
For tax purposes, the law defines residents as all those people who receive most of the income derived from their activity in the State, stay in the country a minimum of 183 days a year or those whose direct family nucleus (spouse and children) reside in Spain.
Therefore, “anyone who does not meet any of the stated conditions will be considered a non-resident for tax purposes”, explains the expert. Carles Solé adds that mortgage loans to non-residents are “financial products analogous to those that can be offered to resident citizens”, although he clarifies that there are “certain particularities, and that they have been the object of very heterogeneous contracting both depending on the moment and of the place “.
Thus, the purpose of the non-resident investor profile is “the acquisition and / or reform of second homes”, according to the expert. This is directly linked to the tourist and vacation attraction. In this sense, in coastal places and islands such as the Balearic Islands, the Canary Islands or Murcia, the sale of housing by foreigners moves around 20 and 30% of total transactions.
Mortgage characteristics
At a formal level, mortgages to non-residents are exactly the same as those granted to residents, although there are differences in terms of granting them and financially.
“The fact that the borrower resides outside the State, and even outside the European Union, conditions the way in which financial institutions assess the risk of these operations and, therefore, their conditions”, assures Carles Solé. The expert explains that it is more difficult for financial institutions to execute the client’s assets in the event of non-payment, since, if this situation arises, they must go to the jurisdictions of the State of residence.
“De facto, the property itself on which the mortgage guarantee has been constituted is the only asset to be executed in the event of non-payment,” he says. Furthermore, despite the evolution of telematic means, the formalization of mortgages requires “a certain level of presence.”
As a big difference, there is the requirement that clients present documentation declaring the legal origin of the funds to be invested, in order to avoid fraud and money laundering.
Finally, it is necessary to indicate that the concession to a non-resident who is a citizen of the EU or with countries with reciprocity agreements with Spain (United Kingdom, United States, Canada …), will have easier access to financing given the Higher degree of security before financial institutions in terms of solvency data and return guarantee.
What conditions do they have?
The very characteristics of mortgages, which are usually second homes, make the contracting conditions tougher. Carlos Solé points out that in addition, due to the very nature of the loan, the client cannot benefit from certain bonuses offered by entities, such as direct debit of the payroll.
In addition, apart from the problem of possible defaults, the expert points out that financial institutions have a “greater difficulty in gathering information on the solvency of the applicant in his country of origin.” In practice, this implies an increase in the stringency of the concession requirements to borrowers, and a lower level of financing.
Thus, “financing of up to 80% of the appraised value is granted to resident citizens and, however, for non-residents a maximum financing of up to 60% is usual,” adds the expert.
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