Financing the building work

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. For the record, HolaBank sometimes advertise at this website, but that didn’t influence my decision.

Early decisions – plugs, lighting, radiators

Although it makes perfect sense when you think about it, I was surprised that decisions about the positioning of plugs, switches, lighting, and radiators, came so early on.

This is my first experience of renovating a property, and it’s not something I’ve thought about before, so I’m learning all about the sequence of decisions you have to take.

One of the first decisions I’ve been asked to make by my builder concerns the number, type, and location of electrical plugs, light switches, TV wall sockets, ethernet jacks, and radiators. The building team need to know where all these things go so they can lay the tubes and pipes for the electrical wiring and plumbing, which all goe in the walls and ceiling.

Switches and plugs seem like small details but their number and position make a difference to small, repetitive tasks in daily life. You really want to have them located in just the right place to make it easy to do small things like turn the lights on and off. So you need to plan where beds and other key bits of furniture will go. Luckily my builders have interior design and architecture in house so I’ve got great professionals to help me draw up plans and make changes as we go along. At this stage I don’t have to decide on the style of these features, just their number and location.

I’m going for lots of plugs in lots of places, as I hate having to resort to plug extension leads that look ugly, get in the way, and collect dust. In my office I’m going for a rack of ten plugs to be on the safe side.

I’m putting digital TV wall sockets in all 3 bedrooms, my office, and the living room, just for safety’s sake. I don’t plan to have TVs in any bedrooms but who knows what my kids will bully me into when they get older.

But as far as TV goes, these days you don’t need TV sockets if you have a fibre optic internet, TV and telephone bundle like the one I have with Movistar. All the data travels over ethernet cables, or wifi. I’m putting ethernet plugs in all the rooms just in case, but the plan is to be wireless as far as possible. I’ll explain the options at a later date.

I’ve kept the old radiators because they are traditional cast iron and cost a fortune. I also like that retro look. We’re going to spruce them up and have them dotted around the flat, though we’ll also install some slimline modern radiators in some places. But I’m not planning to use the central heating much, as I’m putting in lots of insulation, which I’ll explain in my next article.

Lighting is a big and complicated subject that I’ll also be writing about in more detail. It can make all the difference to the mood and look of a home. So often I see lighting installation badly done. I’m determined not to make the same mistake.

Next time I’ll look at the question of insulation, what are your options, and what they cost.

Thermal and acoustic insulation considerations in a Barcelona renovation

One of my priorities in renovating a flat in Barcelona is to ensure the best possible thermal and acoustic insulation for peace and quiet at night, and to save money on heating bills.

Spain is a noisy country with a pleasant climate (at least on the Mediterranean coast and islands), and I guess there is a link between the two. The pleasant climate makes it easy to enjoy life outdoors, so Spaniards grow up surrounded by noise from others, and it doesn’t seem to bother them. But it does bother me. I grew up well-insulated from noise, and just can’t get used to the sounds coming from neighbours at night. It always amazes me how my Spanish family can sleep through noise of neighbours talking, walking around, and watching TV late at night.

The pleasant climate on the coast and islands also means that thermal insulation has never been a big priority when it comes to building homes. Why bother with the expense of thermal insulation if it never gets very cold? But good thermal insulation in a city like Barcelona means you rarely have put the heating on (and don’t get so hot in summer either). Thermal and acoustic insulation are related, and what comes as standard in Spain is not good enough for me.

In Barcelona many of the flats in the Eixample are badly insulated for both heat and noise. The old partition walls between flats in the Eixample are bricks about 10cm wide with a thin layer of plaster, which do nothing to stop noise.

If anything these bricks are great conduits of sound, so you can hear everything going on next door (and I’ve heard it all). As one reader has put it to me: “Don’t talk to me about Spanish bricks. Horrible little skinny things full of holes”.

Noise pollution is not such a problem between buildings, as there are two load-bearing walls and a cavity between. Even so I often hear noise coming from neighbouring buildings, like dogs barking, people walking and talking, and TVs blaring late at night (from a deaf old neighbour who sleeps with the TV on). One hellish weekend about 10 years ago a Dutch hockey team of young lads rented a tourist apartment in the building next door, and practised their ball skills all night whilst partying hard. I lay in bed boiling with rage, and didn’t get a wink of sleep for two nights. I can’t stop what goes on next door, but I can do something to reduce the amount of noise that comes through the walls.

And of course there is noise from the street. My flat is on Bruc, which is a quiet street with light traffic that goes downhill, which makes a big difference as scooters and cars don’t have to rev up so much going downhill. Traffic noise on up streets is much worse. Even so, there is a murmur of noise coming from the street at night, whether your street goes up or down or sideways.

So my goal is to get as close as possible to blissful silence at night without totally blowing my budget, and hardly ever have to put the heating on. I also have an eye on fire-safety, as good insulation reduces the risk of fire spreading.

To achieve all this I’m putting a layer of high-density acoustic membrane (Membrana Acústica Danosa) against all the exterior walls. This is a type of heavy, soundproofing material with a bitumen laminate that works to block noise. On top of this I’m putting a layer of fire-resistant rockwool that also blocks noise and thermal transmission, and finally comes high-density plasterboard, on top of which will go another layer or plaster, followed by paint or wallpaper (design choices to come). For fire-safety I would have prefered not to use a bitumen laminated material against the exterior walls, but I’m told that it’s not a problem given the other measures put in place like the rockwool that goes on top.

Obviously this all comes at a cost, and it drives up my budget, but everyone has their priorities, and you pay more for what’s important to you. I want peace and quiet at night, and also hope to save money on heating bills. I guess I’m also doing my bit for the environment…

The windows and exterior carpentry also need insulation, but that’s a topic for another article in this series.

VAT (IVA) rate on a renovation like this

When renovating a property in Spain, you may qualify for a reduced VAT (IVA in Spanish, short for Impuesto sobre el Valor Añadido) rate of 10%, as opposed to the standard 21%. Eligibility for the reduced rate depends on specific criteria related to the nature and scope of the renovation work.

If your project meets these requirements, you can request your contractor to apply the reduced 10% IVA rate rather than the full 21%. For example, on a €10,000 renovation, this would mean paying €1,000 in IVA instead of €2,100—resulting in a €1,100 savings.

To qualify, you must engage a VAT-registered builder or contractor, as DIY projects do not meet the criteria for the reduced rate. Additionally, the reduced IVA rate is available only for renovations on properties used as personal residences, such as a primary or secondary home, not for properties rented out.

Here are the main conditions for the 10% IVA rate on home renovations in Spain:

• The property should not have been newly built or significantly renovated in the past two years.
• The person requesting the work should be the occupant of the home or a representative from the homeowner association when upgrading communal areas.
• Building materials should account for no more than 40% of the total renovation cost.

Typical projects qualifying for the 10% rate might include re-plastering, repainting, or minor kitchen and bathroom updates. Major overhauls that exceed the 40% materials threshold generally fall under the standard 21% rate, as I discovered during this renovation of my home in Barcelona.

If your renovation meets these conditions, you can ask your contractor to issue an invoice at the reduced rate. They may request a written declaration confirming your compliance with these requirements.

Paying for the building work in stages

After two months work renovation an apartment in Barcelona’s Eixample district great progress has been made, and I’m delighted with the quality of the building work so far – more or less on time and on budget. Some people have asked me how I’m structuring the payments, and have warned me against handing over cash in advance. I’ve agreed a transparent payment plan with my builders that I find works very well, so I’ll explain it for the benefit of others looking at refurbishing a home in Spain.

We have agreed to approach the work and payments in two phases. Phase I starts with preparing the flat for building works, including tearing out the old kitchen and bathrooms, then installing all the insulation and finishing the walls, floors, ceilings, plumbing, wiring, aircon, heating, water treatment, and ordering all the exterior carpentry, and other bits and pieces.

Phase II will be installing the kitchens, bathrooms, lighting, carpentry, parquet flooring, seagrass fitted carpets, restoring the antique hydraulic tiles, painting all the walls, cleaning up and snagging.

We started the work on my Barcelona flat in mid-January, almost two months ago to the day, and phase I is about 70% done. Once a month my builders send me a detailed certification report for the work completed, and invoice me for that work alone. So I make monthly payments based on progress rather than handing over money in advance. I find this is a good way to structure the payments, as one never feels nervous about paying for work that hasn’t been done, and worrying if it will be done.

I did, however, make one payment in advance. When I signed my contract with the builders I made a one-off payment of 15% of the budget to help their cash flow at the start of works. That 15% payment is discounted from every monthly payment, so if the certification invoice is for €20,000 the final figure to pay is €17,000 after subtracting 15%.

It’s a transparent payment plan that keeps both sides happy. I would recommend it.

To be continued...

The full account of this Barcelona renovation has not been written. Due to a serious illness in the family I had to put everything on hold for the best part of five years. The renovation was finished in 2017, but I have not yet found the time to finish writing it up. That’s a project for 2025….

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