Ibiza Finance

At present there are many Banks and Financial Institutions throughout Europe, including the normal Spanish Banks, lending money for Residential and Commercial property purchase in Spain. All lenders  secure the loan on a property, either in your own country or on the Spanish property itself. Spanish banks and U.K. lenders arranging mortgages on Spanish property will generally lend a maximum of 80% of the purchase price to non-residents. Interest rates starting as low as 2.95% and Interest Only Mortgages and Capital and Interest Mortgages are available.

There are both advantages and disadvantages to arranging a mortgage in Spain instead of the U.K. With a Spanish mortgage you will incur higher set up charges compared to the U.K. and many of the current mortgage schemes that U.K. lenders enjoy are not yet available. Some of the advantages Spanish lenders have over their U.K. counterparts are lower interest rates and flexible lending criteria that are designed for quicker application and completion times. You will also find only a handful of U.K. lenders arranging mortgages directly on Spanish property in comparison to the Spanish Banking industry as a whole.

Exchanging your U.K. monthly income into euros to repay your mortgage can be a very daunting and time consuming task, therefore we advise you to seek qualified advice on this matter. The bank of your choice can arrange money transfers in Sterling or Euros at a relatively low cost. It would be prudent to speak to an Independent Financial Advisor (IFA) who can help you locate the best deal and advise you generally. 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.

We highly recommended that you start the mortgage process prior to searching for your property. This can be arranged through a professional Mortgage Broker in the comfort of your home where you will receive a detailed quotation of the costs and expenses associated with purchasing a Spanish property. You will also be advised on all U.K. and Spanish lending options available to you, where your individual requirements will be met. Using a professional Mortgage Broker/ Independent Financial Advisor you will benefit from receiving a “mortgage offer in principle” so you do not waste any time looking for a property you cannot afford.

Another important thing to consider prior to purchasing a property in Spain is Spanish Tax Laws. These vary from U.K. tax laws and inheritance tax is a subject that should be taken seriously when deciding whose name the property should be registered in! In all circumstances we highly recommend qualified legal advice before you sign anything.

Transferring money worldwide
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.

Currency Factors
Many people are unaware or neglect the importance that exchange rates have on the cost of their overseas property and the currency risk that is associated with an overseas purchase.
The majority of individuals still use their bank to exchange their currency and transfer their funds abroad even though they know that their bank do not necessary provide them with the best rates, or facilitate against currency risk. The reason being they are afraid or unsure of the alternatives.
Recommendations from friends and property agencies can usually help to find a reputable foreign exchange specialist. There are also several checks you can make to ensure that you are getting the most from your currency specialist. Firstly, insist on having a personally assigned dealer (preferably the same dealer that was recommended by your friend or property agency). Make sure the dealer keeps you informed on all issues affecting your situation. If there is a rate that you desire, inform your dealer and he/she can contact you or book that rate automatically when it is achieved. The dealer’s ability to access up-to-the-second exchange rates means that they should be able to significantly undercut banks and other financial institutions that quote daily rates, however, it is always a good idea to get quotes from your bank to ensure that your dealer is giving you the best rates.
The currency market can fluctuate dramatically and the actual cost of foreign currency depends on the timing of your currency purchase, this is known as currency risk. For example, during Jan 03 and Mar 03 the Sterling to Euro exchange rate dropped from 1.56 to 1.46. In real terms, a property priced at €200,000 would increase from L128,205 to L136,986, a difference of L8,781. The ability to fix the exchange rate when the market is favourable for some time in the future removes currency risk. This can be done using a forward contract, but there are other mechanisms that may suit your particular circumstances.
In summary, use a recommended currency specialist or Independent Financial Advisor that is able to offer a personal service and strategies that can alleviate currency risk. These simple guidelines could save you not just money, but time and effort.

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