How to get a mortgage in Spain: mortgages on rustic land in Andalusia

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If you are looking to get a mortgage on rustic property in Spain, there are endless questions you could be asking yourself: “What type of mortgage do I need?”, “How much can I borrow?”, “How much is the interest rate?” In this guide we’ll break it down for you. You can find the answer to all your questions regarding mortgages on rustic land in Andalusia, Spain. 

Find the right bank or mortgage broker

For mortgages for properties on rustic land in Andalusia you would expect that the same rules apply as for mortgages on urban land. In general that is true. However, some banks find it difficult to value the property. Especially if it is mainly a residence and no agricultural exploitation. Some banks are not even interested. They do not have enough knowledge and experience and therefore, find the risk too high. 

Hence, when you are looking to get a mortgage in Andalusia, the first step is to check with your bank or mortgage broker whether they can be of service to you. If you have a good relationship with your bank already, we would advise you to check their rates first. If you have no contacts at all it could be better to go to a mortgage broker and based on your personal situation and the type of property, they will request quotes from different suppliers.

What are accepted types of income to apply for a mortgage in Spain?

Once you have chosen your broker or bank, the next step is to do a check how much you can borrow. This is based on your income and other debts you might have. Most of the time brokers and banks will do a pre-check, to give you a rough idea what the maximum amount is they will lend you. 

In order to be able to apply for a mortgage later on, you have to present a proof of income that is accepted by the bank. These are the types of income that are accepted by banks:

  • Employment income, in the form of salary, bonuses, commissions or dividends and the contract of your employer.
  • If you are self employed you have to show a track record of at least 3 years
  • Rental income and income from other contracts
  • Pension

Whether a form of income is accepted by the bank or not is ultimately based on whether it is stable and regular income or not. There are different ways of proving that your income is valid. 

  • If you are (self) employed you can show an annual tax statement, your work contract or the tax returns.
  • If you own an LTD company, you can show your annual accounts.
  • If you have rental income, you can show the rental contract or the tax returns to the bank.
  • If your income comes from a pension, you can show your annual pension statement. 

Next to your income you also have to let the lender know what other debts you have and what the conditions and monthly payments are.

How much can you borrow in Spain?

Depending on your debt-to-income (DTI) ratio you will be allowed to borrow more or less. Typically, Spanish banks will loan you approximately 30% of your net income to cover your financial commitment as well as the repayment of the mortgage. Please bear in mind that every bank is different. We urge you to ask for advice from a mortgage broker. 

How much you can borrow also depends on your loan-to-value (LTV). The LTV ratio is a risk assessment that financial institutions make before approving a mortgage. On rustic properties, a tax resident in Spain can borrow up to 70% of the property’s value. For non-residents, the LTV lies between 60% – 70% of the valuation or purchase price whichever is lower.

Since you also have to pay an extra 10% for all purchase costs we count with the rule that you have to provide approximately 50% of the purchase price yourself.

Valuation of properties on rustic land

Once you know how much the mortgage provider will lend you based on your income you need to know what the bank valuation is for the property. Bank valuations tend to be lower than the commercial value of the property. In Spain the valuation is done by specialized architects. They mainly look at:

  • The quality of the build. Based on the quality they use a value per m2. 
  • They also look at an average price per m2 in the area. That is tricky for country properties. The average finca will have a much lower price per m2 than a luxury villa.
    • Villas & Fincas has to convince the valuers by showing comparable luxury country properties.

Interest rates in Spain

Just as the deposit and the amount you can borrow, interest rates are also different across banks. Some factors that could influence this rate are one’s employment status, the DTI ratio, other insurances. Ultimately, it boils down to the client’s profile. The more securities you can give, the better the rate is that you will get. In general non-residents are seen as a higher risk and will have higher interest rates as residents. 

For the actual rates and comparison we advise you to check online or ask your broker.

How long does it take to get a mortgage approved in Andalusia?

Getting a mortgage approved will take at least 6 – 8 weeks. If you are in the process of buying a house we advise you to start early and have your income checked by the mortgage provider before you make an offer. 

Vendors will not always reserve the property for you for the full 8 weeks. If your income has been approved by a bank already you have gained at least 3-4 weeks. The only thing missing is then the valuation. It is safe to take another 2 weeks from ordering this to receiving the official certificate with the value. And then the final step, the offer from the bank with all the conditions will take another 2 weeks. 

If your income situation is not straightforward or if you are borrowing a high sum, you can easily add an additional 3-4 weeks. The local bank will not be able to decide and need the final OK from their head office and risk department before they can give you a final proposal.

To prevent disappointments, it is best to start early!

Danielle Ernstsen | 23rd March 2023