This is a website for buyers, owners, and sellers of property in Spain, offering reliable information and resources to help you get things done with confidence. It is run by Mark Stücklin, author of the Spanish Property Doctor Column in The Sunday Times (2005-2008), and the book ‘Need to Know: Buying Property in Spain’ published by Collins.
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.
In terms of useable square meters I’ve got to renovate 191 m2 with all new plumbing, wiring, heating, air conditioning, etc. The cost including VAT works out at 1,110 €/m2 of useable space, which means floor space you can stand on, so not including walls. My plan is to never have to do up this home again in my lifetime, so I’ve gone for top quality materials, which obviously are not cheap.
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.
WHICH BANK?
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.
GarySFBCN says:
Have you tried pleading your case at the bank? I found my bank now willing to negotiate, which is recent change.
El Sueco says:
Hi Mark!
This series could not have come at a better time since we are about to buy and refurbish a flat in Poblenou. I’m looking forward to the next installment!
I have a question for you though regarding the mortgage. How have you managed to include the cost for the renovation? When we brought this up with our bank contact (at La Caixa) we were told we could only borrow money for the actual purchase of the flat, and that the maximum we could borrow would be 80% of whichever is the lowest amount of either the purchase price or the valuation. Our new flat needs to be rewired at the very least and we also want knock out a wall as well as move the kitchen, so if we could find a way to include the cost of that into the mortgage, that would be extremely helpful. Any ideas on how to achieve this?
Best,
Andreas
Mark Stücklin says:
Hi Andreas, it is true that banks normally won’t lend to finance obras, just the purchase. Maybe some banks have a type of mortgage to cover building works, I don’t know. I need to look into this question a bit more. I guess lenders do make exceptions. In my case I’ve been a La Caixa client for 15 years, so that might have helped. But more importantly I think the fact that my mortgage with an LTV of 72% was enough to cover the purchase and renovation was the key factor. I bought at the right time and prices have gone up fast since. If my LTV of up to 80% had only been enough to purchase I would not have gotten funds for obras. I’ll try to find time to look into mortgages for obras and write an article about it.