Buying Guide

Here's a simple guide to get the most out of buying a property in Spain:

• Set your budget limit and stick to it.
• Visit the property at least twice before you make a decision.
• Check what amenities the property has such as electricity, water, gas.
• Have a builder or architect examine the structure of the building.
• Talk to your prospective neighbours about the area.
• If you are unsure about a property, take photos and draw sketches to take home with you.
• Have your legal advisor check ownership of the property before you sign anything.
• Have your legal advisor check outstanding debts on the property before you sign anything

Initial Costs
As well as the cost of the property, the buyer will be liable for transfer tax (IVA), which at present is 6% on a second-hand property and 7% on a new one, plus 1/2% stamp duty. The property registration office will charge you a fee to change the new deeds into your name. This is usually around 300€. There will also be notary charges for copies of the 'escritura publica'. The charge is on a scale depending on the contract price. In total you should allow 10% of the purchase price for costs. It is often the case that the buyer also pays the sellers fees. Check this at the point of enquiry and it is often possible to negotiate. Banks may also charge an opening commission for mortgage loans.

Annual Costs
The local town hall charge IBI which is an annual real estate tax. The previous owner is obliged to give you copies of previous bills. Community charges apply when you buy a property on a community development. These cover things like maintenance, swimming pools, gardens etc. You will also be liable for a wealth tax, payable annually and based on the value of the property and a property owners income tax based on your income from the property. You should clarify these in detail with your estate agent at point of enquiry.

Finance
Many developers of new properties are now offering up to 80% over 20 years for non-residents. Local banks will offer anything up to 60% for European residents. Most loans are long-term and secured on the property. When seeking a loan, make sure you are aware of the interest rates and if they are fixed or floating. Banks will ask for passports, residence permits, payslips, sale contracts and copies of the title deeds. There are many advantages to taking out a loan to purchase your property, in the form of tax allowances. We have not listed them here as they are subject to fluctuation. You may need to transfer money into Spain and you need to protect yourself:

When you buy a property in Spain, you will know the price of the property in Euros but you will not know the actual cost until you buy all of the currency to pay for it. This means that the property could either cost you more than you had planned (if the Euro strengthens) or the property could become cheaper (if Sterling strengthens). Recently Sterling has fluctuated more than 10% against the Euro within a matter of months, so this does deserve careful consideration. On the basis that you are buying a property and not speculating on the currency markets, it is worth fixing the exchange rate for all of your future stage payments to the agent / developer.
 

How to fix the exchange rate:
1/ Buy all of the currency now on a "spot contract". Hold the currency on deposit and send payments when they are due from your Euro account. To do this you need to have full funds available.
2/ Buy as much currency as you can afford now (e.g. for the first 2 payments) and reserve an exchange rate for the remaining payments. To reserve an exchange rate you need to buy a 'forward currency contract'. In effect you are buying currency now but paying at a later date when you have the funds available. The exchange rate that you achieve on a "forward contract" is not quite as good as that for a "spot contract" but it does guarantee that you know the cost of the property. You will be required to pay 10% of the value immediately and the balance by the date that you have reserved the currency for.

Use a specialist currency broker: As a result of extensive research Zoe Barnes Properties   are pleased to offer preferential currency transfer rates for all their clients and visitors, click here for more information. It is also advisable to speak to your new bank with regards to High Interest Sterling Accounts where your mortgage payments can be taken directly and converted on your behalf.

Legal Matters
Most properties in Spain are in fact NOT registered. Most of the re-sale properties are sold by Spanish ....still.... since they earned about 100€ a year from selling fruit and veg they would certainly not pay 300€ to pay for their property to be registered. The only way someone may find out if how many square meters is legally theirs to sell is by investigating at the Catastral Department and Town Hall. If they have ever declared that there is a property at all. A great deal of families have never informed the Town Hall that a senior family member has deceased and therefore many sales take months to proceed to completion. There are many families with complicated backgrounds, most children believe they actually own what is and sometimes what once was their parents, sometimes resulting in an Expediente Dominio where there can be no proof of title at all. A great deal of the beautiful villas you see advertised are not registered by the builder and therefore the purchaser pays for the first registration, sometimes no licences have been issued and the seller is required to pay fines to the Town Hall. Many many properties are then registered with less than the actual square meters of built area, and a great many are not mortgageable.  Most urbanisation properties now being built are of course registered first because there is a compulsory registration system in Spain for new developments but this is Urban land - not countryside. Most of the old village properties have no Title Deeds.

The seller of a second-hand home should provide the following documents:
The title deed of the property
Receipt of payment of the real estate tax for the last year
Receipt of payment of the tax on the increased value of Urban Land
Certificate that any community charges (if applicable) have been paid up to date
Latest copies of domestic bills so that you can take over the services such as electricity and water

The seller or developer of a new property should provide you with:
Deed of declaration of new construction Occupancy permit Certificate of rateable value of the property.
Normally, before the purchase of a property is made official, there is a prior agreement drawn up between the buyer and seller. This document will identify the two parties and set out the terms of purchase. You must seek legal advice before signing this and you must be sure that this is the property you want to buy. You can lose any deposit you have paid if you pull out of the purchase and there is a penalty clause in the contract. In the case of the seller defaulting then he has to pay twice the amount. When it comes to signing the contract, this has to be before a notary, in the form of a public deed. This ensures that the details are entered onto the public records.

Insurances
Fire insurance is compulsory by law when taking out a mortgage. Comprehensive household insurance is available to protect your home and contents. Life insurance can be taken out to guarantee payment of the loan in the case of death.

Tax advantages for property owners
If you spend more than six months a year in Spain, you are obliged by law to apply for a residents permit.* This law is currently being abolished.
There are however, several tax advantages for residents of Spain that do not apply to non-residents.
Inputted income tax is an annual tax on an imaginary income resulting by virtue of ownership of a property and is charged as 0.5% of the catastral value. If you are a resident you will not be charged this on your principal home.
Wealth tax is a tax on all assets in Spain and is charged at 0.2% of the catastral value of any house owned. For residents the first 108,000€ is exempt and for a joint ownership this would apply to each partner. These two taxes are paid annually as long as you own the property. Non-residents do not receive any relief so therefore have to pay 0.7% of the catastral value every year.
When you come to sell the property, capital gains tax will be charged on any profit you have made. This is 35% for non-residents but only 20% for residents. A further concession for residents is that if you are over the age of 65 and have lived in your property for at least three years, you are totally exempt from capital gains tax. Finally, if you are 60 years of age or more and have lived in your property for at least three years, you can bequeath your property to your spouse or children and avoid paying inheritance tax on 95% of the valuation. The inheritor must also be a resident of Spain and agree not to sell the property for at least ten years.