The spike in temperature here in the UK will provide food for thought for anybody who has been considering relocating, or acquiring a property in Spain. There are two ways to look at it.
Either you are thinking: “so long as we are having sunshine like this, and the cold wet winter months are a distant memory, the second property, or big move abroad, can wait.
Or you are calling your partner, children or friends and saying something along the lines of: “just imagine, this is what life could be like if we move abroad; sunshine, the joy of the great outdoors (in the dry) and a sunny disposition; let’s go somewhere we can experience this every day – now!
People choose to relocate or acquire property overseas for all kinds of different reasons and however you arrived at your decision, don’t worry, there’s no judgment here; just an awareness that, if that’s what you are going to do, you should make sure you are as properly prepared as you possibly can be.
It starts with browsing the overseas property listings on a site like Rightmove, although those who have been hunting a little longer may have found more specialised sites, like Lucas Fox, or even the website of a local agent you know personally, if you are planning to buy in a place you have been visiting for many years.
Don’t buy a promise, buy a property!
First of all, pet peeve alert, before you start mentally moving yourself in and doing approximate sums in a new excel sheet, check this particular overseas property has actually been built.
Really? Yes, unfortunately many listings sites of properties in Spain are for properties that are still under construction, or where construction hasn’t even been started. This means that the superlative apartment you are seeing in the images does not exist yet, and even if it should eventually be built, it’s the show apartment, and will be much more lavish than the one you end up buying.
In fact, the Spanish property market has no shortage of new-build properties that have been built, but have not been sold, and this is down to the global financial crisis of 2008/09. When investment banks around the world started to unwind their complex mortgage backed asset positions, the Spanish property market lost out in a big way, with the bottom falling out of the property market as the country slipped into recession.
But the market eventually recovered, and in order to fill the empty properties, mortgage lenders in Spain often offer very attractive packages, sometimes lending up to 80% of the value of the property, with reasonable interest rates; you are unlikely to be able to find such affordable property deals in the UK.
Give yourself a realistic budget and add the extras every time!
So, new build caveat out of the way, why, as the title of this article suggests, should you immediately add 15% to the price of the property you see online? It’s simple really, and you have probably guessed it already: taxes, fees and charges.
It is, however, crucially important to understand how property is bought and sold in Spain, and the fees and charges involved, if you are going to make a purchase in the country. Right now, Spain is a country that welcomes foreign buyers with open arms. There is plenty of housing available and the economy is still recovering, hence any injections of cash or commitment to an area is generally welcome.
To buy a property in Spain you have to register with the Spanish authorities to obtain a NIE number; more or less the equivalent of a National Insurance number in the UK; and you may well need to appoint a notary who will rubber stamp the property purchase and transferral of property from seller to buyer.
It’s also important to be on your guard against property scammers. As mentioned before, unless you have really done your homework, avoid property that is planned or under construction; even where planning permission has been secured these projects can still be turn out to be scams; and always err on the side of caution and insist on seeing all appropriate documentation when dealing with lawyers, estate agents and local negotiating agents. Most are genuine; some are not.
And now to answer the 15% question. First of all, the buyer pays the bulk of the fees involved in the acquisition of the property (excepting the estate agents’ fees of about 3% of the transaction), and, in Spain, these tend to work out anywhere between 8-15% of the total property value.
- If the property is resale, there is a transfer tax, known as ITP, of between 8-10% payable on all properties. If the property is new-build, then VAT is added instead; typically 10% of the purchase price.
- Stamp duty is normally 1.5% of the mortgage deeds or purchase price.
- When buying with a mortgage, the lender usually takes a fee of 1% of the entire property value
- Notary costs, Land registry fees and valuation fees. A good notary will cost more than €1,000 in all likelihood, with land registry and notary accounting, most likely, for at least another €1,000
- Legal fees; this could be estimated either as €1,500-2,500, or at 1-1.5% of the total property value, depending on complexity.
The transfer tax and stamp duty alone are likely to add at least 10% to the cost of your dream home, and when you add lawyer and notary fees, other incidental expenses and, of course, travel between your current home and your overseas one (Spanish property law often insists that you be personally present to sign documents etc.) you start climbing ever higher to the dreaded 15%. Expect to pay less than this, and prepare to be disappointed.
Buying property overseas can represent a make or break deal in an individual or families life; the decision is not to be taken lightly, but perhaps the best starting point is to quickly identify what is within, and what outside, your budget.
Failing to realise the size of the extra payments involved when purchasing a property either domestically or abroad has stymied many an otherwise promising deal, but with 15% as a rule of thumb, now, we hope you won’t have to go through any excessive add-ons heartache!
This content is sourced and brought to you by The Money Cloud – comparing the best rates for sending money overseas offered by hand-picked, regulated brokers and money transfer agencies.
Learn more about living in Spain, starting with the rule around residency and gaining citizenship in the country through purchasing property.