Buyers Guide

Buying a property abroad is exciting but we understand it’s a big decision. Our buyer’s Guide gives you an introduction to purchasing in a new development or a resale property. It covers the steps involved in a property purchase, as well as taxes, contracts, documents, completion times, lawyers and fees involved. Our aim is to guide you through the entire purchasing process from start to finish ensuring that you buy safely and follow the correct procedures.

As a professional and understanding agent we will guide you rather than pressure you, asking you questions to determine exactly what type of property you want (such as size, location, and budget). That way we can create you a bespoke itinerary.

Finding the best property is only possible when you determine what exactly is 'best' for you and your family. Begin to think about what type of home will be suitable for you over the next five or ten years, and whether you are looking for a space that will grow with you.

Questions to ask yourself are, what features am I looking for, what are my needs today and in the near future, and what do I want from the location? In terms of needs, How many bedrooms do I need? As for location, consider whether you want to purchase within walking distance to shops, restaurants or the beach. In addition, do you want a new home or one that has been previously owned?

Using one agency provides you advantages such as a dedicated representative who as you view each property will learn your likes and dislikes, which will mean you won't have to start from scratch every time you meet a new agent.

A reputable agent understands the market where you are looking to buy property. Their knowledge of the area saves you time and helps ensure you get a fair price. In addition, the agent helps you determine a suitable price for negotiation. In most cases we do not represent neither the vendor or developer and can offer you our impartial advice.

Set On Spain can offer you a bespoke itinerary based on our expertise, honest approach, and wealth of knowledge.

Private Sale and Purchase Agreement

Within approximately 14 days after signing the reservation agreement, a private sale and purchase contract (PPC) is signed between the buyer and the seller (or their authorized representatives). During this time, your lawyer should have their investigation and searches in relation to the property finalised. Thereafter, approximately 10% of the purchase price (minus the initial deposit) must be paid.

Reservation Deposit / Due Diligence Process

Once you have found a property suitable to your desires, the purchase process begins. A reservation agreement is put in place which in essence ensures that the property is no longer available on the market. In doing so, this will "freeze" the purchase price. A deposit must be secured from you at this stage. The deposit usually ranges between 3,000€ and 12,000€, dependent upon the purchase price/property type. It is wise to have sufficient monies on arrival to Spain if you wish to put down a deposit. The best way to pay the reservation fee is by credit card or bank transfer to your lawyer’s client account. When the property has been reserved and deposit has been received your appointed lawyer will carry out the necessary investigation on the property which may vary depending on the property.

Notary – Title Deed / Registration

When property is sold in Spain, the transfer is formally completed when title deed ("Escritura de Compraventa") is signed before a Public Notary in Spain. The final payment must be presented and thereafter the keys are handed to the new owner. In any event wherein you cannot be present in person on completion, it is possible to grant a Power of Attorney to your lawyer so that all necessary procedures can be completed on your behalf. The Power of Attorney enables the lawyer to sign all the relevant contracts and documents related to the purchase on your behalf. Once the title deed is signed, the Public Notary will fax a copy of it to the Property Registry. Your lawyer will pay on your behalf all the relevant transfer taxes and will deal with the formalities of registration of your title deed. Final registration of the title deed may take several months. Your lawyer can also arrange for the transfer of the utility service accounts, such as water and electricity, and arrange that all other bills be charged by direct debit to your Spanish bank account. Connection to such provision services may take some time. Therefore, we suggest that you confirm this with your lawyer in advance of moving into the property.
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Purchasing a Property in a New Development

In the case of new construction, it can take up to 18 months before completion and payments are normally in stages for example by bankers draft cheques from a Spanish bank account or bank transfer.

When purchasing a property in a new development, the developer by law should provide bank guarantees against each payment made on account of the purchase price.

Many developers offer these bank guarantees free of charge while others charge a percentage. A bank guarantee protects your payments. In the unlikely event that the developer fails to complete the property, goes into liquidation or fails to complete on time and you do not wish to wait, all the sums paid by you will be returned in full.

New properties are handed over without water and electricity connection. However, this can be arranged by your lawyer.

Under Spanish Law, the developer must provide you with a liability construction guarantee.

Ownership Structure

The purchase of a property in Spain can be carried out through different manners:

1) In your own name.
2) In the joint names of the spouses and/or all the children.
3) Through a Limited Company (Spanish Company, Foreign Entity, Offshore).
4) Usufruct (Life Interest)

You should seek proper legal advice from your lawyer as each method has its own advantages and disadvantages. Everything depends on your own personal circumstances.

Purchasing Costs 

Transfer Taxes – Resales

The Andalusian government reduced the Transfer Tax to a fixed 7% for resale properties. This law was established on 27th April 2021.

BEFORE 27th April 2021

For dwellings under and up to €400,000 8% Transfer Tax.
Between €400,000 and €700,000 9% Transfer Tax.
From €700,000 and over, 10% Transfer Tax.

Taxes on New Properties

If you are buying a new property, you will pay VAT (instead of Transfer Tax) at a rate of 10%. In addition you will pay stamp duty at 1.2% previously 1.5%.

You should keep in mind that in addition to the purchase price, there are associated costs such as notary fees, stamp duty, registry fees, legal and administration expenses, bank fees, VAT (IVA), Transfer Tax, Costs and taxes involved with a property purchase transaction are approximately 10‐14% of the purchase price. If you place a mortgage on the property there can be opening fees to consider.

Other Costs to Bear in Mind:
Water and electricity connection charges / Change of utility contracts and organizing their payment by direct debit / Wills / NIE number / Power of Attorney / Open Spanish Bank Account.

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Basic Required Formalities

Power of Attorney

We recommend you provide your lawyer with a Power of Attorney in order to act on your behalf. The Power of Attorney enables the lawyer to sign all the relevant contracts and documents related to the purchase on your behalf.

N.I.E.

Is the Spanish ID number for foreigners, and it is mandatory to apply for it at the police station to purchase a property. Your lawyer can apply for it on your behalf with a valid Power of Attorney.

Spanish Bank Account

You need to open a Spanish Bank Account for your direct debits related to your utility’s services and annual costs and taxes. With the Power of Attorney, the layer can open the bank account on your behalf and arrange for the direct debits.

Spanish Will

Although it is not compulsory to have a Will in Spain, it is strongly recommend you to have one. A Spanish Will usually makes procedures easier and quicker in Spain. Without a Spanish Will, finalising an inheritance procedure can take up to one and a half or two years. Spanish authorities apply tax penalisations if these matters are not dealt with promptly.

Property Costs to Bear in Mind

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Community Fees

Each owner is responsible for the payment of his/her share of the expenses incurred in the maintenance and upkeep of the complex.
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Property Income Tax-Non-resident taxes

This tax for active rental income is rated in a % of the net income received or a deemed income based on usually 2% or 1.1% of the rateable value. You must file a tax return with the Spanish Tax Authorities. Your lawyer can offer these services and act as your fiscal representative in Spain.

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Local council Tax (IBI)

This Real Estate Tax is based upon the rateable value of the property and can vary from town to town. In Spain, the tax “Impuesto sobre Bienes Inmueble” is more usually referred to as the IBI.
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Utility Services

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Home Insurance

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Wealth Tax where applicable

The first 700.000 Euros of every individual ́s assets are exempt from tax. Calculation based on a progressive scale and therefore sharing the ownership results in a lower total tax to be paid. Example: A couple owns a property valued at 1.400.000 Euros with no mortgage: No Wealth Tax will be paid. Mortgages or other outstanding debts on the property will be deductible from a tax base.

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Mortgages

In Spain, foreigners and non-residents can apply for a mortgage with Spanish banks. We can assist you by recommending banks or a mortgage broker most suited to your needs.

Requirements

In order to obtain a mortgage in Spain, you must meet a series of requirements related to your ability to meet payments and also the value of the property being purchased. The mortgage repayment will never exceed 30% or 35% of the net monthly income of the applicant and the maximum re payment period is 30 years. In Spain, mortgages are normally granted until the age of 70-75.

Amount requested

As part of your mortgage application process, the bank will commission an official, certified and independent valuation company, to carry out a valuation of the property. This company will provide an official report on the value of the property, which becomes the main direct guarantee for the recovery of the loan in case of non-payment. With regard to the mortgage amount, the official loans offered by banks are, as a general rule, up to 60%-65% of the valuation value of the property for non-resident clients, and up to 80% for residents. As with any mortgage, the property acts as the main guarantee; if the client cannot meet payments, the mortgage lender can execute the property, and eventually, repossess it and sell it to recover its loan.

Types of mortgages

The most common type of mortgage in Spain is the capital and interest or repayment mortgage. In capital and interest mortgages, the loan is returned by paying part of the capital monthly, together with the interests generated. This way, the loan is returned completely once the repayment period has ended.

Documents

You will need certain documents in order to apply for a mortgage, which vary depending on whether the applicant is employed, self-employed or retired:

Employed:

  • Last three pay slips.
  • Tax return from last two tax years.
  • Company certificate confirming salary and length of time at company.
  • Bank statements for last three months.
  • Reference letter from bank.

Self-employed:

  • Tax returns for last two tax years.
  • Report by accountant.
  • Bank statements for last three months.
  • Reference letter from bank.

Retired:

  • Last three pension slips.
  • Tax return from last two tax years.
  • Bank statements for the last three months.
  • Reference letter from bank.

Mortgage costs

Apart from the monthly interests and repayments, there may be costs related to setting up a mortgage in Spain, like the opening commission, insurance, legal fees, etc. If you are interested in obtaining a mortgage your lawyer can draft a detailed list of all associated costs related to setting up the mortgage, once they know the amount you are allowed to borrow. Another legal requirement in setting up a mortgage is purchasing an insurance policy on the property and its contents. The bank could also ask you to contract a life insurance policy.

This is a general guide to purchasing a property in Spain. However, this guide does not attempt to cover all legal and financial points, prospective purchasers are recommended to seek professional legal advice.