Mortgages in Tenerife

By Alan Nicholson, Director of Clear Blue Skies SL

Q - We have heard that mortgages in Tenerife are cheaper than in the UK. Is that correct, and what do we need to apply for one?

A - They can be. Unlike the UK system whereby you shop around trying to get the best rate, then change provider after 2 or 3 years, because the lender will revert you onto their SVR (standard variable rate), in Spain you take out the mortgage and most people will stay with that provider for the life of the mortgage, or until they sell the property. The mortgages here are linked to “euribor” a variable rate which changes daily. You will be given a date, normally the anniversary of opening the mortgage, and each year your repayment will be changed up or down, according to the rate of euribor. (Usually the repayment is 1% to 1.5% above euribor, and euribor was 5.5% in October 2008 and 2.3% in February 2009). However there are a few things you need to know.

1) The Spanish banks are under a huge amount of pressure from Banca España to safeguard against giving loans to people who will be unable to repay them, so you will be required to provide 6 months wage slips, 6 months bank statements, 2 years P60, and, most important, an Equifax or Experian credit report on yourself, which must be immaculate.

2) Banks lend broadly speaking 60% to non-residents and up to 80% to residents. However this is a percentage of the price you pay or the valuation, whichever is lower. (Tip; if you need an amount near the limit of these percentages, ask the bank to get a valuation before you commit any money for deposits).

3) Valuations are not normally made here by Surveyors, they are made by valuers who inspect the property, measure it, and compare it to the details found in the Title Deed). For this reason, if extra rooms have been added but are not shown in the title deed, they are not included in the valuation. They then compare this to prices for properties they believe are similar locally, multiply it by the official meterage, and come to a value.

4) You will have to pay an opening fee, normally 1%, so keep a note of that in your calculations (many mortgages will have a 1% closing fee also). There is also a tax on the creation of the deed, so if you add a total of 2.5% of your mortgage onto your other costs, you will not be far away.

5) If you are non-resident, many banks are reluctant to provide mortgages over longer than 25 years.

So the word is by all means look at the savings in mortgages for property in Tenerife, just don’t take it for granted and look at the options back home of equity release and other schemes which may suit you better. Oh and beware of Spanish banks with “special first year rates”, no, these are not bargain rates to entice you in, these can be 4% or 5% above euribor, as banks try to cash in on the mortgage famine.

Go Back to Alans Tenerife Property Advice Column

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