Buyers Guide
Buying a property abroad is an exhilarating adventure, but we know it's a monumental decision. Our Buyer’s Guide introduces you to purchasing new developments or resale properties, detailing every step of the process. From understanding taxes, contracts, and necessary documents to navigating completion times, legalities, and fees, we cover it all. We are committed to guiding you through the entire journey, ensuring you purchase safely and adhere to proper procedures.
As a dedicated and empathetic agency, we prioritize guiding over pressuring you. By asking specific questions about your desired property’s size, location, and budget, we tailor a bespoke itinerary just for you.
Discovering the perfect property starts with defining what "perfect" means for you and your family. Consider your ideal home for the next five to ten years, and whether it should accommodate future growth. Reflect on essential features,
immediate and future needs, and your preferences for the location. Determine how many bedrooms you require and whether proximity to shops, restaurants, or the beach is crucial. Decide between a new build or a pre-owned home.
Choosing a single agency offers you a dedicated representative who becomes attuned to your preferences, eliminating the need to repeat your requirements with each new agent.
A reputable agent’s deep market knowledge ensures you save time and secure a fair price. We provide unbiased advice as we typically do not represent vendors or developers.
Red Sixx offers you a personalized itinerary, leveraging our expertise, honesty, and extensive knowledge to find your ideal property.
Reservation Deposit / Due Diligence Process
Private Sale and Purchase Agreement
Notary – Title Deed / Registration
In Spain, the property transfer is officially completed when the title deed ("Escritura de Compraventa") is signed before a Public Notary. The final payment is made, and the keys are handed over to the new owner. If you cannot be present in person, you can grant a Power of Attorney to your lawyer, allowing them to complete all necessary procedures on your behalf. This includes signing all relevant contracts and documents related to the purchase.
Once the title deed is signed, the Public Notary will fax a copy to the Property Registry. Your lawyer will pay all relevant transfer taxes and the formalities of registering your title deed. This final registration process can take several months. Additionally, your lawyer can arrange the transfer of utility service accounts, such as water and electricity, and ensure other bills are set up for direct debit to your Spanish bank account. Since connecting these services may take some time, it is advisable to confirm these arrangements with your lawyer before moving into the property.
Purchasing a Property in a New Development
When buying a property in a new development, the developer is legally required to provide bank guarantees for each payment made towards the purchase price. Many developers offer these guarantees at no additional cost, while others may charge a percentage. A bank guarantee protects your payments, ensuring that if the developer fails to complete the property, goes into liquidation, or does not finish on time and you choose not to wait, all the amounts you paid will be fully refunded.
New properties are handed over without water and electricity connections, but your lawyer can arrange these services for you. Additionally, under Spanish law, the developer must provide a liability construction guarantee.
Ownership Structure
Purchasing property in Spain can be done through various methods:
1. In your own name.
2. In the joint names of spouses and/or children.
3. Through a Limited Company (Spanish Company, Foreign Entity, Offshore).
4. Usufruct (Life Interest).
Each method has its own advantages and disadvantages, depending on your personal circumstances. It is crucial to seek proper legal advice from your lawyer to determine the best ownership structure for you.
Purchasing Costs
Transfer Taxes – Resales
The Andalusian government has set the Transfer Tax at a fixed rate of 7% for resale properties, effective from April 27, 2021.
Before April 27, 2021:
- For dwellings up to €400,000: 8% Transfer Tax
- Between €400,000 and €700,000: 9% Transfer Tax
- Over €700,000: 10% Transfer Tax
Taxes on New Properties
When buying a new property, you will pay VAT at a rate of 10% instead of the Transfer Tax. Additionally, you will pay stamp duty at 1.2%, down from the previous rate of 1.5%.
It is important to remember that, in addition to the purchase price, there are associated costs such as notary fees, stamp duty, registry fees, legal and administrative expenses, bank fees, VAT (IVA), and Transfer Tax. These costs typically amount to approximately 10-14% of the purchase price. If you take out a mortgage, there may also be opening fees to consider.
Other Costs to Bear in Mind:
- Water and electricity connection charges
- Changing utility contracts and setting up direct debit payments
- Wills
- NIE number
- Power of Attorney
- Opening a Spanish bank account
When buying a property in a new development, the developer is legally required to provide bank guarantees for each payment made towards the purchase price. Many developers offer these guarantees at no additional cost, while others may charge a percentage. A bank guarantee protects your payments, ensuring that if the developer fails to complete the property, goes into liquidation, or does not finish on time and you choose not to wait, all the amounts you paid will be fully refunded.
New properties are handed over without water and electricity connections, but your lawyer can arrange these services for you. Additionally, under Spanish law, the developer must provide a liability construction guarantee.
Basic Required Formalities
Power of Attorney We recommend granting your lawyer Power of Attorney to act on your behalf. This allows them to sign all relevant contracts and documents related to the purchase for you.
N.I.E. The N.I.E. is the Spanish ID number for foreigners, mandatory for purchasing property. Your lawyer can apply for it at the police station on your behalf, provided they have Power of Attorney.
Spanish Bank Account A Spanish bank account is necessary for direct debits related to utilities, annual costs, and taxes. With Power of Attorney, your lawyer can open the bank account and arrange direct debits for you.
Spanish Will While not compulsory, having a Spanish Will is strongly recommended. It simplifies and expedites procedures in Spain. Without a Spanish Will, finalizing inheritance can take up to two years, and Spanish authorities may impose tax penalties for delays.
Property Costs to Bear in Mind
Community Fees Each owner is responsible for their share of the expenses for maintaining and upkeeping the complex.
Property Income Tax - Non-resident Taxes Non-resident property owners must pay taxes on rental income, which is calculated as a percentage of the net income received or based on 2% or 1.1% of the rateable value. A tax return must be filed with the Spanish Tax Authorities. Your lawyer can provide these services and act as your fiscal representative in Spain.
Local Council Tax (IBI) This Real Estate Tax is based on the property's rateable value and varies by town. Known as "Impuesto sobre Bienes Inmueble" (IBI) in Spain, this tax must be paid annually.
Utility Services Costs for utilities such as water, electricity, and gas.
Home Insurance Insurance to cover the property against damage and liability.
Wealth Tax (where applicable) The first 700,000 Euros of an individual's assets are exempt from this tax. It is calculated on a progressive scale, so sharing ownership can reduce the total tax paid. For example, if a couple owns a property valued at 1,400,000 Euros with no mortgage, they will not owe Wealth Tax. Mortgages or other outstanding debts on the property are deductible from the tax base.
Mortgages
In Spain, foreigners and non-residents can apply for a mortgage with Spanish banks. We can assist you by recommending banks or mortgage brokers best suited to your needs.
Requirements
To obtain a mortgage in Spain, you must meet specific requirements related to your ability to make payments and the value of the property being purchased. The mortgage repayment will never exceed 30% to 35% of your net monthly income, and the maximum repayment period is 30 years. Typically, mortgages in Spain are granted until the age of 70-75.
Amount Requested
As part of your mortgage application, the bank will commission an official, certified, and independent valuation company to appraise the property. This valuation becomes the main guarantee for the loan. For non-resident clients, banks generally offer loans up to 60%-65% of the property's valuation value and up to 80% for residents. If the client cannot meet the payments, the mortgage lender can repossess and sell the property to recover the loan.
Types of Mortgages
The most common type of mortgage in Spain is the capital and interest (repayment) mortgage. With this type, you repay part of the capital monthly along with the interest generated. This ensures the loan is fully repaid by the end of the repayment period.
Documents
To apply for a mortgage, you will need certain documents, which vary depending on whether you are employed, self-employed, or retired:
Employed:
- Last three pay slips
- Tax returns for the last two years
- Company certificate confirming salary and length of employment
- Bank statements for the last three months
- Reference letter from your bank
Self-employed:
- Tax returns for the last two years
- Report by an accountant
- Bank statements for the last three months
- Reference letter from your bank
Retired:
- Last three pension slips
- Tax returns for the last two years
- Bank statements for the last three months
- Reference letter from your bank
Mortgage Costs
In addition to monthly interest and repayments, there are costs associated with setting up a mortgage in Spain, such as opening commission, insurance, and legal fees. If you are interested in obtaining a mortgage, your lawyer can provide a detailed list of all associated costs once they know the amount you are eligible to borrow. Additionally, purchasing insurance for the property and its contents is a legal requirement. The bank may also require you to take out a life insurance policy.