Mark Stucklin of Spanish Property Insight

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Spanish property home > Buying property in Spain

14. Financial Matters - Part One

When buying a holiday home or main home abroad, it is easy to make the mistake of focusing solely on the price of the property during the planning stage. However there are some substantial transaction costs associated with buying property in Spain, not to mention maintenance costs once you are an owner. All of these costs need to be identified and quantified if you are to avoid financial distress.

The costs of buying property

The transaction costs you will have to pay depend upon the type of property you buy, where you buy, and whether or not you take out a mortgage on the property. Here we run through the different types of costs, but you can also download a financial model from www.spanishpropertyinsight.com to help you estimate these expenses.

Taxes

If you buy a resale property from a private individual, you only have to pay the transfer tax (ITP). If you buy a newly built property from a developer you pay VAT (IVA - if buying in The Canaries then the local equivalent of IVA known as ICIG) and stamp duty (IAJD). If you buy from an investor who has bought off-plan to sell on before completion then, for tax purposes, this is the same as buying a newly built property from a developer.

These taxes vary by autonomous region and are summarised in the following table:

Autonomous Region (2005)	Resale	New Build
Autonomous Region (2005)	ITP	IVA	IAJD*
Pais Vasco, Castilla La Mancha, Castilla Leon, Navarra, Ceuta, Melilla	6%	7%	0.5%
Andalucia, Aragon, Asturias, Cantabria, Cataluña,Extremadura, Galicia, Madrid, Valencia	7%	7%	1%
Baleares, La Rioja, Murcia	7%	7%	0.5%
Canarias	6%	4.5%	0.5%

*Rates given for IAJD are only standard rates. The rate may vary

So when buying a property in either Andalusia, Catalonia or Valencia, the total taxes would be 7% of the price for a resale property and 8% for a newly built property from a developer. In the Balearics they would be 7% for a resale property, and 7.5% for a newly built property.

Notary fees

Notary fees are set by the government, and are comprised of a fixed element, and a variable element that reflects the price of the property and the number of clauses in the deeds. They also charge a small fixed fee of around 30 Euros for every copy of the deeds (copia simple) requested by the buyer. This makes it difficult to say in advance exactly what the Notary’s fees will amount to. However to give you an approximate idea they range from 0.1% of the declared price of a property (for properties of 400,000 Euros or more) to around 0.4% (for properties of under 100,000 Euros). The Notary will also add on VAT at 16%.

If you use a mortgage then you will have to pay Notary fees on the mortgage deeds as well. Once again these will range between 0.1% of the value of the mortgage (for large mortgages over 400,000 Euros) and 0.4% (for small mortgages under 100,000 Euros)

Property registry fees

This is the fee you pay to have your title (and mortgage, if applicable) inscribed in the property register. As with the notary fee this fee is calculated on a sliding scale that reflects the price of the property, however you can estimate it as around 0.1% (for expensive properties) to 0.3% (for cheaper properties) of the declared price of the property. VAT at16% is charged on the Registry’s fees.

Lawyer’s fees

Many lawyers on the ‘costas’ charge between 1% and 1.5% plus VAT (at 16%) of the full property price for their service, as recommended by the lawyer’s association (colegio de abogados) in areas such as Malaga. However other lawyers charge by the hour (anything from 70 Euros to over 400 Euros per hour, depending upon the lawyer), whilst others charge a flat fee of between 1,500 Euros to 2,000 Euros (plus VAT), regardless of the price of the property. As you can see this can lead to wide differences in legal costs for the same service. For practical purposes you should estimate legal fees of 1% plus VAT, and simply refuse to deal with any lawyers that charge over 1%.

When hiring your lawyer you should find out what their service covers. Some will include a full conveyancing service that includes paying the taxes, inscribing your title in the property register and updating the cadastre. Others may just limit their service to checking the contracts and accompanying you to the deeds, and then charge extra for all other tasks. In the latter case you should use a gestor to carry out these tasks, as gestores charge less than qualified lawyers.

Mortgage costs

If you use a mortgage taken out in Spain to buy your property this will increase the taxes, notary and registry fees (as indicated above). If you use a mortgage on your property in the UK the additional costs are likely to be considerably lower.

Spanish mortgage

Stamp duty (IAJD) will have to be paid on the total value of the mortgage (la garantía hipotecaria), not just the loan value. The total value includes the loan plus interests plus costs, which can double the value of the mortgage for tax purposes. The rate of this tax varies by autonomous region, and will be either 0.5% or 1%, as explained in the tax table in the section on taxes above. Because the total value is used, rather than just the loan amount, the effective rate of this tax will usually be between 1.5% and 2% of the loan amount. A mortgage taken out in Spain will also incur notary and registry fees.

When taking out a mortgage in Spain you should also allow for the following additional expenses:

Valuation. You will have to pay for the property to be valued. This may cost anything from a few hundred Euros to over a thousand, depending upon the value of the property. In most cases it costs between 300 and 500 Euros.
Arrangement fee. Most lenders charge an arrangement or opening fee, as in the UK. This normally varies from 0.5% to 1%, though some lenders may charge more than this.
Administrative fee. If you take out a mortgage the lender will insist that the paying of taxes and inscription of the title in the property register are carried out by a gestor appointed by the bank. This fee is likely to be a couple of hundred Euros.
Building insurance. If you take out a mortgage you will also have to take out building insurance. You don’t have to take out building insurance if you don’t use a mortgage, but you would be mad not to, so in reality this is not a differential expense.
Mortgage broker fee. It is usually a good idea to use a broker to help you shop around for the best mortgage and manage the application process. Some brokers charge a fixed fee of a few hundred Euros to consider your application whilst others provide this service for free. All brokers charge a fee based on a successful mortgage, which usually ranges from 0.5% to 1% of the value of the mortgage obtained. Be warned that some brokers may charge more than this.

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