Home buying process
This section explains on the legal process and costs involved in buying your property or development. This is intended as a guide only and is in no way a substitute for professional advise.
You have inspected a number of properties and have fallen in love with your dream home or spotted an ideal investment opportunity. You have made a verbal offer and agreed a price with the vendor. Now what happens?
1. Appointing a lawyer (abogado)
Whilst it is not a necessity to have a solicitor to purchase a house in Spain, it is highly recommended. They will be able to check out any outstanding debts which may exist on the property both at the Land Registry and the local town hall as well as help with contracts and NIE numbers. You are free to appoint a solicitor of your choice, or if you prefer we can recommend one.
Key tip: If you appoint a Spanish speaking English lawyer the chances are he will sub contract most of the work to a Spanish lawyer so you can save some money by going direct.
2. NIE number (Numero de Identificacion de Extranjeros).
It is essential to have an NIE number for any financial dealings you may have in Spain. This is a simple, but sometimes lengthy process which involves filling in a form with your solicitor. You also need to supply a colour 'passport' photo, a photocopy of your passport and your passport, the solicitor will then obtain your NIE number from the local police station. The NIE number can take anything from 1 week to 5 weeks to be obtained and we strongly advise you to apply for one as soon after you arrive in Spain as possible. The price for this is generally included in the fee for the conveyancing however, if you wish to apply for one earlier the fee is normally around 60 Euros.
3. Power of Attorney
A lot of transactions in Spain need to be signed before a Notary, not just house purchases and sales, but also mortgage deeds and wills. Assuming that you are intending to stay non resident, this may not always be convenient.
The alternative is to draw up a Power of Attorney, which is a formal legal document through which you can give someone the power to do certain things on your behalf. This would include signing papers at the Notary office. It makes sense that the person you appoint as Power of Attorney lives in Spain and is someone who you can trust. You might consider appointing a Spanish lawyer who is accountable to the Spanish equivalent to the Law Society who is under duty to act in accordance with your instructions.
If at any time you wish to cancel the Power of Attorney, this can be done by simply notifying the person who you appointed and arrange to cancel the agreement.
4. Applying for a Bank Account
Whilst it is not a necessity to have a Spanish bank account to purchase a property in Spain we strongly recommend it. We can help you to open an account at the bank of your choice. The cost of opening a bank account for 'nonresidents' is around £10 for the administration fee.
5. Applying for a Mortgage
You can choose to apply for a mortgage in Spain or from the UK. Mortgage rates in Spain tend to be lower than those in the UK currently around 3.5%.Applying for a mortgage in Spain is a straight forward process, as in the UK. You will need to prove that you have an income or sufficient funds to pay the mortgage. The level of mortgage offered is directly dependent on your financial status and also the declared value of the property you wish to purchase. There are generally 2 levels of mortgage offered, one for residents and one for nonresidents. For nonresidents the mortgage offered is generally around 60% of the declared value, for residents it is usually around 80% of the declared value of the property.
6. Purchasing a Property
Once you have decided on the property you wish to purchase and the terms and conditions have been negotiated with the vendor then a deposit of 10% of the purchase price is required to secure the property and as official confirmation of your intent to purchase that property. The remaining 90% is payable on the signing of the title deeds (Escritura) before the Notary . If you are purchasing a construction then the constructor will ask for stage payments to be made on the property. These can vary dependent on the constructor - see section on purchasing a development. Your appointed solicitor will then carry out all necessary searches on the property; to ensure that it is owned by the vendor, it has planning permission, there are no outstanding debts or charges on the property.and other legal encumbrances. Once the searches on the property are satisfactorily completed and the deposit has been paid in accordance with the terms and conditions of the contract then the title deeds are signed by both the buyer and the seller before the Notary.
7. Visit to the Notary (El Notario)
This is a solicitor appointed by the Spanish government to witness the signing of all legal public documents. In this case the title deeds (Escritura) of the property. He represents both the buyer and the seller. The Notary fees are around 2% of the purchase price of the property and must be paid at the time of the signing of the deeds. The Original signed document is retained by the Notary who will apply for a formal change in the land registry. The purchaser will receive an initial legal copy of the title deed which is signed and stamped by the Notary. The official title deed can take a while to be processed and until then this is your official proof of ownership and must be kept in a secure location.
Before registration is completed all taxes arising will need to be paid. You will also need to pay the fees and other transaction costs resulting from the purchase.
8. Taxes
We recommend that you allow a sum of around 10% of the price of the property to cover payment of purchasing fees e.g. land registry fees, notary fees, legal fees and taxes. These include:
Transfer Tax (IVA)
This is a Spanish equivalent of VAT is paid by the purchaser and is a standard 7% tax applied to the declared value of the property. This tax must be paid within 30 days of signing the title deed
I.A.J.D (Impuesto sobre actos juridicos documentados)
This is equivalent to stamp duty at 0.5% payable only where IVA is charged.
Plus Valia - local town hall tax
This is generally paid by the owner when they sell the property. Transfer tax is calculated on the increase in the value of the land from when it was last sold. The calculation is based on the rateable value of the property and is a 'one-off' payment.
Legally the the obligation to pay Plus Valia falls on the vendor, but it is accepted practice for the vendor to pass it on to the purchaser.
As the tax relates to increases in land value it will vary from location to location. In practice for many modern properties this tax is negligible. However, if you are purchasing an older property that has not been sold for some time, then you should ask your lawyer to check with the town hall who will be able to give you a figure fairly quickly.
Rates
This is like the old English rates system and is based on the declared value of the property. The average price paid is around 120 Euros per year.
Community Fees
These are payable yearly and the average price is 120 Euros per year. These are paid in respect of services ie. Street lighting, refuse collection, police.
Water
If your property has a mains supply then there is a standard charge for water which is approximately 12 Euros payable every 3 months. The charges for consumption are in addition to this. If you have a supply from a balsa, underground store, then the fees are dependent on consumption and are payable when the water is delivered.
Electricity
This is very dependent on how much you consume, there is a standard charge of around 12 Euros payable every 2 months and then a charge for consumption in addition to this.
Telephone
The standard charge for a telephone line installation from Telephonica is around 180 Euros. The line rental and call charges are then payable every 2 months.
Purchasing a development
Much of the process of buying a development is similar to the points stated above and there are one or two differences to be aware of.
When you are buying a development you will often be expected to sign a contract there and then and put down your deposit. To secure a development means that you have to react quickly as the demand for properties on the coast are high. Usually there is little time to find a lawyer to advise you on the purchase. This is where our knowledge can really help make that difference and add value to your decision making process. There have been cases in some areas holiday homes are being built and sold in the hundreds on individual developments.
Unless you are literally the first buyer on the development, there is a strong probability that any blips on the contracts have been ironed out by previous buyers and sometimes by agents who know the needs and expectations of UK clients.
When you buy a development you will pay a deposit and sign a contract to secure the plot. You will then make stage payments.
The amount of the deposit required and the amount of the individual stage payments will vary from builder to builder.
If the builder does not complete the property, the buyer is protected by consumer protection law, and all money paid over must be paid back with interest. It is also a legal requirement of the contract.
Because of the mass development of second homes is widespread, most Spanish banks are prepared to pre- approve mortgages and provide some kind of bridging finance at competitive rates.
Once the contract is signed, the price is fixed at the price shown in the contract and the builder can't increase the price during the building period. Wait times for a development can vary from 6 months to three years.
When buying from a development developers must provide detailed plans including building specifications, proof of planning permissions and proof of ownership.
When there is a common ownership or sharing of facilities between owners usually a community of owners is established through which community charges can be shared.
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In summary, buying a development can be an excellent way to build capital growth on your investment without too much initial outlay of money. In some cases, before the house or apartment is ready to move into, you can transfer ownership and thus make some high capital gains without incurring the various taxes when owning a property.
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