Spanish Property Purchases – Off Plan v Resale and how to finance them both
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Spanish Property Purchases – Off Plan v Resale and how to finance them both |
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Below is a very useful article written by Mark Mountney, Managing Director of Rose Financial Services, who arrange Spanish Mortgages to buy property in Spain
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Buying in Spain In Part 1 of this 2 part piece, I covered off the really important early part of the purchase process which relies upon checking the validity and accuracy of the legal ownership and relevant paperwork. This applies to ‘off plan’ purchases in the same way as it does to ‘resale’ properties. The reality is though that as there is a historical precedent with resales (the property already exists, is owned by an individual or individuals rather than a development company, and it is correctly and individually registered), the same cannot be said for off plans. Off plans are simple enough to understand; you contract to buy a product that does not yet exist; you are buying at the plan stage, hence the name. All you can see is the architects drawing and that is it. An early point to make re the financing of the purchase. Whilst you may be prepared to meet the various stage payments that the developer has requested, you cannot arrange a mortgage on the property until it is not only finished but also is registered correctly. There is often a delay post the end of the build stage to have the properties individually registered. The process here is complex involving planning permissions and building licences and an effective sign off by the local council as habitable. Because the process is long and detailed, getting the ‘ducks in a row’ is sometimes tricky and not always trouble free. And almost invariable, initial timetables go out of the window. Where you are buying an off plan with mortgage financing (always recommended) we at Rose FS suggest an initial consultation which will be followed by another some 3 months prior to the target legal completion (not the build finish). Purchasing any property really needs the input of a licensed conveyancing solicitor and this applies to off plan as much as any other type, perhaps moreso. Why? Because off plan projects need planning permissions and licences before a stroke of work can be done and you need this checked out by a specialist. Do you really want to invest a lump of your capital in something that you do not know is legal or not? You wouldn’t do it in the UK, so why would you even contemplate doing this elsewhere in the world? The norm with most off plan purchases are stage payments; from as little as 10% before completion to up to 100% in advance. Personally I would never contemplate nor recommend investing such monies without having the peace of mind of knowing that the asset was mine at the outset. But many do and are comfortable with that. But there is another point to make here and that is do you know what you are committing to and what you are getting for your money? By that I mean that the purchase contract that you sign, the Compraventa, is a private contract to little more than a purchase order. The developer promises to build and you promise to pay, but that is it. You own nothing before the notarisation and, if anything goes wrong and you want either your money back or compensation, it is down to you having to sue. Not an easy thing to do! In this buyer’s market, I would strongly suggest that deals are there to be done which better protect you i.e. pay as little up front or in stages as you can get away with. Preferably, push back the bulk of the cost right to the end of the process. That will keep the developer keen! So what are the attractions of off plan versus resale? With resale it’s WYSIWYG (pronounced whizzeewig) or ‘what you see is what you get’. You can see it and you can touch it. Off plans are quite the reverse. With resales the legal ownership is much clearer to identify, even if there are hurdles to overcome. And normally, because the property would have been bought and sold perhaps many times in the last few decades, the title line is cleaner. Not so with off plan; it is a first time registration and quite often is rustic areas rather than in urban towns. Again, a more complex issue. As to the financial attractions of one against the other, the potentially greater percentage increase and short term gain can fall to off plan, especially where you intend not to complete but to sell on or ‘flip’ before the end of the process. But, again it is a buyer’s market; there is a lot of property for sale but not as many purchasers as everyone would like. This applies to off plans as well as resales so, when considering an off plan, you must really expect to have to go to notary i.e. go the whole mile and effect the full purchase. Financial returns cannot now be guaranteed. So to enter an off plan without fully planning for the necessary finance to complete the purchase is dangerous; yes, the developer may have a bank who will consider a transfer of mortgage (a developer’s mortgage) but this can be a little ‘woolly’ at best and these are not always on the best of terms. Chances are these will only be Repayment mortgages (Capital and Interest). They will not offer ’Interest Only’ terms which are so critical here in Spain. You need to have a cast iron assurance that, if need be, you can pay for the property in full. Again, it comes to full financial planning in advance rather than ‘shooting from the hip’ in reacting to circumstances. Always plan for the worst case scenario and you will never get a nasty surprise! There you have it! A fast and furious look at resales versus off plans; the attractions and the pitfalls and, for both, the absolute necessity to plan well, arrange the financing in advance and always, always use a licensed conveyancing solicitor to represent you. Mark Mountney is a partner in Rose Financial Services, a specialist mortgage brokerage and regulated Independent Financial Advisor based in the Parque Comercial, Mojacar. He is a fully qualified mortgage and financial adviser in the UK with some 10 years experience in managing his own firm. Mark was also a founder of The Association of Mortgage Intermediaries, the trade association for mortgage advisers with 20,000 members.
A Spanish property mortgage is as straightforward a process is as in the
UK. A number of documents must be furnished to the Spanish bank in order to
accommodate a smooth transaction. |
Spanish Mortgage and Spanish Property
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