Taxes and fees are inevitable when you buy in Spain, but do your homework and you can avoid the hidden costs that lurk at every turn.
Sunday Times Home Section, 16 July 2006
There is nothing like feeling ripped off to leave a bitter taste in the mouth. When it comes to buying property in Spain, there are plenty of ways to overpay and end up angry. To avoid this, it helps to understand the main purchase costs and how they can sometimes disguise excessive charges.
The purchase price
The only way to avoid overpaying for property is to research the market thoroughly before you wade in with your chequebook. Information is power: the more you know about the market, the easier it is for you to spot exaggerated prices. Avoid free or heavily subsidised inspection trips offered by many developers, which can distort reality.
Doing your research is especially important in Spain, where you quite often find the same property for sale with two or more agents at significantly different prices.
“The difference in price can be 10% or more,” says Sarah Dodgson of Hermosa Homes Spain, a Marbella estate agency. “The commission charged by different agents explains the variation.”
So, do lots of research and visit where you want to buy under your own steam. If not, you risk overpaying, sometimes by tens of thousands of euros.
The tax bill
Taxes on property transactions in Spain are high and there’s no escaping them. Rates vary from one autonomous region to another, but in the popular regions of Andalusia, the Valencia region and Catalonia, buyers have to pay a transfer tax of 7% for resale properties, or 7% Vat plus 1% stamp duty (total 8%) for new properties.
Notary and registry fees
You can’t avoid these if you want to enjoy secure property rights. Set by the government, they usually amount to about 0.3% of the value of the property to the notary and 0.3% to the registry. If you are using a mortgage to buy, you will have to pay a second set of notary and registry fees, once again of about 0.3% each, based on its value.
It is important to use an independent lawyer. Most lawyers charge 1% of the purchase price, plus Vat; it is possible to get excellent legal work for less than this and shoddy work for far more. Many offer a full conveyancing service to British buyers, including utility contracts, drawing up wills and obtaining foreigners’ identity numbers — the numero de identidad de extranjero (NIE) that non-residents need for tax purposes.
It is not uncommon for buyers to pay through the nose for these extras, sometimes overpaying by €1,000 (£695) or more. Insist on a detailed, written estimate of all costs before you commit, check them against other sources and make it clear you will want to see all supporting invoices.
Buyers often overpay when taking out a mortgage.
For a start, brokers’ fees vary from between 0.5% and 2% of the value of the mortgage, in some cases just to point you in the direction of a bank. “Be especially wary of brokers offering extraordinarily good terms while asking for a large, upfront, non-refundable fee,” cautions Lee Lyons of the Spanish Mortgage Company. “That may be the last you see of both broker and fee.” Only use reputable brokers.
The standard mortgage- opening fee is 1%, but rates can go as high as 2.5%. To avoid an excessive opening fee, insist on seeing a detailed breakdown of costs and conditions from a selection of banks to find the best deal.
Using a mortgage will also mean paying for a valuation of the property, often at a cost of between €300 and €500 (£210-£345), plus paying the bank’s administrative costs of about €300 (£210) for drawing up the mortgage deeds.
Euros and currency conversions
Many British buyers need to change pounds into euros, and the rate they pay can make a big difference to the overall cost.
Get quotes from both specialist currency dealers and banks but, as Henry Harman of Escape Currency points out: “Currency dealers have to be able to beat the bank, otherwise there is no point to them.” A currency dealer should be able to save you about 1% compared with a typical high- street bank’s rate.
Spanish bank charges
Banks in Spain have a habit of springing surprise charges that can add £700 or more to the cost of a purchase.
The first shock often comes when you transfer funds from the UK into your new Spanish account. Unless you are careful, many banks will charge between 0.3% and 0.5% of the amount just to say hello to your own money (this is known as a lifting fee).
David Leeming, 55, from London, transferred €425,000 (£295,000) to complete on two townhouse investments in Alcaidesa on the Costa del Sol. “To my horror, I was charged a lifting fee of €1,700 (£1,180), which was 0.4% of the transaction,” he says. “It took months of non-stop complaining at all levels before they agreed to a refund.”
The second shock comes when you ask for a bank- guaranteed cheque, which many vendors insist on. Again, many banks have standard rates for non-residents of between 0.3% and 0.5% of the cheque’s value, which can swiftly add hundreds of extra euros to your costs.
“I was originally charged €2,250 (£1,560) for a cheque when I bought a villa on the Costa Brava,” says Ian Smith, 59, who lives near Stevenage, Hertfordshire. “Fortunately, I had negotiated a maximum fee when I opened my account, which they had forgotten to apply, so the fee was reduced to €270 (£185). Otherwise, I would have had to pay the full rate.”
Both these fees are negotiable and should not add up to more than a couple of hundred euros. The trick is to clarify and negotiate them with the bank manager before you open an account. Shop around for the best deal.
© Mark Stucklin (Spanish Property Insight