Obtaining a Mortgage in Tenerife

There are many Spanish and other International banks located in Tenerife, each offering different types of deals and the guidelines that are given here only relate to pre-owned property. Subsidies and incentives offered by developers of new property can distort the rules, however it is important to understand that any subsidy given by the developer will be put directly on the costs and selling price of the property.

Your personal circumstances and investment requirements will determine which banks are offering the most suitable deal for you. Wady Properties Tenerife Office maintains a good working relationship with all the Tenerife Mortgage lenders and constantly updates the latest terms, conditions and offers, so that we can be sure that our clients obtain the very best deal to suit their particular needs and circumstances.

The first and most important thing to know is that the mortgage offer will depend on two factors only:

1. The Valuation of the Property (not necessarily the purchase price)
2. Your Ability to meet the Repayments

Firstly, lets consider the Valuation of the Property. The current level of lending to a non-resident is usually a maximum of 70% of the valuation and a straightforward example would be a property being purchased for 100K which would therefore appear to attract a mortgage of 70K. However there are anomalies which arise from the method that each bank uses to arrive at their own valuation of the property so 70% is not guaranteed, it's only a guide.

Each bank varies in the way it reaches an assessment of property value but all base it on a complex calculation with variables such as the area of the property and its location. In the past you may have seen properties advertised with an 80% or even 100% mortgage. This was one of the ways that Spanish banks competed for mortgage business. However, in the last few months, since the USA property collapse and the resulting pressure on the world banks this is no longer applicable. The banks are now being ultra cautious with their valuations and keeping their risk levels to a minimum. Indeed, there are brand new properties coming onto the market with only 60% mortgages being offered.

The next consideration is Your Ability to meet the Payments and the first important difference between Tenerife and the UK is that it is very difficult for a non resident to get a 'Buy to Let' mortgage in Tenerife. In other words, the income from the rental of the property being purchased will not be taken into account for the purpose of obtaining the mortgage.

There is also no fixed calculation e.g. 3 x income as in the UK. It really is a matter of providing as much information as possible to show that you can afford to take on and repay the debt. Since the USA problems of 2007, mortgage lenders everywhere have tightened their rules and are now less likely to offer mortgages to those clients that are perceived as 'high risk'. This is not usually a problem with clients that are 'employed' and have regular documented tax deductions. It is usually the self employed that have a problem providing evidence of sufficient income often showing low tax 'self assessments' but high savings. Remember, it is sufficient regular income proof that the banks are looking for.

Everyone has to provide:

• A personally written statement of what property they already own, its value and details of the outstanding borrowing with proof of regular repayment of instalments
• Bank books and account statements showing savings and a throughput of income and expenditure for the last 6 months
• An Experian Credit report obtainable from www.creditexpert.co.uk for each of the applicants
• Anything that you can think of that would help to show the bank that you are trustworthy and can manage the mortgage repayments
• Copies of Passports
• An NIE non residents registration number which we at Wady Properties can help you to obtain

If you are employed you will need to provide:

• Your last six months wage slips
• Your last P60 tax statement

If you are self employed or a director of a limited company taking income as tax beneficial dividends etc. you will need to provide:

• Your last years accounts (previous years showing longevity and stability are also helpful)
• Your most recent company tax return showing all incomes, taxable and non-taxable
• Your most recent personal tax return showing all incomes, taxable and non-taxable
• A certified copy of last years balance sheet, corresponding with the tax return
• Company's last 6 months bank statements
• A statement and summary from your accountant verifying the above documents

Summary

It is now becoming far more difficult to obtain a Spanish mortgage and the banks are altering their rules weekly at the moment, to remove the option of lending to high risk borrowers and creating a sub-prime mortgage disaster such as that experienced in the USA. The interest rates between the UK and Europe are now much closer so it is prudent to make a balanced decision on whether to raise the mortgage required on the Tenerife property or raise the necessary finance in the UK against your UK assets, although raising a mortgage against UK assets will obviously put those assets at risk in the event of a default.

It really doesn't matter much what existing property you already own, the value of your assets is not really considered a significant factor by Spanish lenders, what they are basically interested in seeing is your net income and your total expenses so that they can see if you can support the additional loan and, as I mentioned earlier, this income cannot include what you expect to earn from the property that you are mortgaging.

As far as the Spanish banks are concerned the only security that you are raising money against is the Tenerife property, so understandably all that the lenders are interested in is the valuation of the property and your ability to meet the repayments.

For more information please email sharon@wadyproperties.co.uk

03/2008