Is a taking out a Spanish mortgage a good idea?


For most people there are good reasons for financing at least a part of a property purchase with a mortgage.

Advantages include the added legal due diligence conducted by the bank, and smaller ‘wealth tax’ (patrimonio) payments, though there are also costs associated with taking out a mortgage, as was explained in the previous section. At a time like this, with Euro-zone interest rates still low by historical standards, it can also make sense to use a Spanish mortgage just to take advantage of the cheap cost of borrowing.

In this scenario you borrow from the bank at low real (after inflation) interest rates, and if the value of property in Spain rises, as it has done most years in the past (though not necessarily in the future), you profit from all the capital gains. In the meantime you have your own funds invested in other assets earning you a return.

The ‘cheap money’ argument in favour of taking out a mortgage in Spain (even if you have the money to buy without a mortgage in Spain, for instance by equity release from a property in the UK) depends on prevailing interest rates, and the differential between UK mortgage rates and Spanish mortgage rates. To find out if Spanish mortgage rates are still low by historical standards, and if the cost of borrowing in Spain is still cheaper than in the UK, please go to our Euribor and Spanish mortgage interest rates section + Euribor

Lastly, you should always work on the assumption that interest rates will go up at some point, and be sure that if they do, you will be able to cope with the financial consequences. To put it another way, don’t borrow more than you can cope with if interest rates rise – and they are sure to- especially if you are relying on rental income to cover your financing costs (your rental assumptions are another source of uncertainty that you need to evaluate carefully).