Here I explain how I financed the purchase and renovation of a flat in Barcelona, and why it might not be a good idea to do any demolition until you have a valuation if you need a mortgage to finance the building work.
210 square meters on the right side of Barcelona’s Eixample doesn’t come cheap. I’ve had to take out a mortgage with a loan-to-valuation of 72% to cover the purchase price and total renovation, which is now under way.
All of this leaves me with a rather large mortgage for the first time in my life. But fixed-interest rates are so low today, and money so cheap, that I saw it as a once in lifetime opportunity not to be missed. The whole thing would have been out of the question if fixed-interest rates were not so good.
I’ve taken out a 30-year mortgage with a fixed interest rate of 3.19%, but with bonus conditions called bonificaciones like home insurance, life insurance, investment funds, salary deposits, and a security alarm service, I’ve got it down to 1.99%. Financially I can cope with that rate, and I know it will never go up.
Unfortunately, people in the know like Santos González, President of the Spanish Mortgage Association, say that mortgage rates will start to rise in the short term, so I’m not sure how long these fantastic fixed-rates will last. Unfortunately for me too, because I will have to increase my mortgage when the building work finishes, and I might be too late to get the same terms on the increase.
Why will I have to increase my mortgage? Because the valuation of my property came in much lower than expected, meaning my mortgage is about 30% smaller than what I need. Why was the valuation so low? Mainly because I thought I would be clever and rip out the old kitchen (pictured above) and bathroom (below) to make some progress whilst I was in the process of arranging the mortgage. It turns out that a property with kitchens and bathrooms, however old and unusable, is worth more in the eyes of an appraisal company than a property without them. So if you need a mortgage to do a total renovation, I have learnt the hard way that it is better not to start with the demolition work until the valuation has been done.
I used CaixaBank for my mortgage, as I have been banking with them for 16 years, and the conditions for this mortgage looked so good to me I didn’t bother shopping around. CaixaBank have a network of offices around Spain specially geared up to help foreigners who need banking products and services like mortgages in Spain. These branches are part of the HolaBank network run by CaixaBank. You can find out more about HolaBank clicking the banner below. For the record, HolaBank advertise at this website, but that didn’t influence my decision.