The Touchstone Spain Guide to Buying a Repossessed Property
The Steps to Buying a Bank Repossessed Property with Touchstone Spain.
1) Arrange a viewing.
Please complete our Viewing Request Form and provide a copy of your passport. We will then arrange a viewing of the properties with the Bank.
The Bank require at least 5 working days notice.
The viewings are all ways accompanied by a representative of the Bank and one of our senior members of staff.
Viewings can only be made Monday - Friday 10:00 - 18:00 ( not weekends or public holidays ).
2) Making An Offer.
We sit with you in the Bank office and guide you on what offer to make, in some cases we are able to secure an offer below the asking price. At this stage the bank will require information on how you will wish to purchase the property and will ask for a Mortgage application to be completed or proof of funds if you are paying in cash.
3) Mortgage Application.
We assist you with the application process and again we negotiate the best deal we can for you, often being able to reduce the rate offered and also the term and in most cases obtain a period of interest only payments. Some banks are willing to offer 100%, however this is not always the case so be prepared to pay a deposit of between 20%-30% of the offer price plus the buying costs and our fees.
We are able to offer UK clients a equity release or Re-mortgage facility to meet these costs.
4) The Legal Process.
We introduce you to an independent lawyer who will carry out all checks on the property and ensure all is legal, they also assist you in obtaining, the N.I.E number you are required to have ( see our buyers guide ), opening of a bank account, connection of utilities .
5) Payments & Fees.
You will be required to pay a reservation fee once your offer has been accepted, this is normally €6,000. This fee is held in an account with the Bank until completion.
The balance of Deposits and Fees will be required by your lawyer before the signing of the title deeds and a full breakdown is supplied.
Unlike "Real Estate" Agents we are not paid commissions by the Property Owner ( Bank ) so our brokerage fees are also due at the day of signing the title deed and collection of the keys.
The Brokerage fees is only payable upon completion of the property.
We charge a minimum fee of €5,000 for a property priced up to €74,999.
€7,500 for a property priced between €75,000 and €149,999.
€15,000 for a property priced between €150,000 and €299,999.
€25,000 for a property priced between €300,000 and €599,000
For properties priced over €600,000 our fee is 5% of the agreed purchase price.
We charge a minimum fee of €15,000 for a property priced up to €299,999.
For properties priced over €300,000 our fee is 7% of the agreed purchase price.
As you the client are paying our fee we work for you and work in your best interest, helping to secure you the best property at the best price.
We are able to offer UK clients equity release or Re-Mortgage facilities to meet these costs.
What is a “Repossessed Property”?
This is the general term used to describe properties which have ended up in the hands of the bank due to non-payment of the loans associated with the property. They are homes whose new owner is the bank.
Is it safe to buy a repossessed property?
Legally there is no problem. The bank representative will sign the deed of sale in favour of the buyers.
No. The loan originally taken out on the property has been cancelled and the property should appear as free of charges in the property registry. If there are any doubts regarding payments due to the homeowners’ association or the Council (IBI tax) these should be paid by the banking institution before the deed of sale is signed. Outstanding water and electricity payments that may have been left by the previous owners are irrelevant, as in any case a new contract is made with the supply company.
Do these properties benefit from any special mortgage conditions?
Yes. All the banks make special offers for the purchase of their properties. Some finance a very high percentage of the value of the house and also offer better interest rate conditions. They are usually more flexible in their analysis of the buyers’ documentation than in the case of a mortgage for a property not owned by the bank.
Do they have water and electricity supply?
In general, no. They have been unoccupied for some months and the supplies will have been disconnected. To reconnect the supply a new contract will have to be taken out with the corresponding companies. These contracts may require additional documentation which the banking institution is not obliged to supply and which may involve an additional cost. Depending on the age of the property, on how long the supplies have been disconnected and on the particular rules of the Council in question, different documents will be requested such as, for example: official certificate of installations, second occupancy licence, technician’s certificate, etc.
They differ greatly. In general they all (except new builds) require some aesthetic repair. You should bear in mind that their previous owners lost the home and had to give it up, and in some cases items such as internal doors, bathroom fittings and taps may be missing.
No. The banks’ policy is to liquidate their existing real estate stock and in most cases this consists of establishing a minimum price which excludes any maintenance or repairs being carried out by the bank.
The fact is that you don’t. The properties are sold “as seen” in the condition in which they are found and the bank is not responsible for any damage there may be to the property.
Without doubt. However, you must also take their condition into account. When you go to view repossessed properties you should know what to expect. You need to be able to imagine the house clean and repaired of any small imperfections. However, the investment required in some cases may be profitable for the buyers.
During the years of Spain’s strong growth lending grew enormously and a lot of houses were built. For some time now the financial crisis and the increase in unemployment have meant that many individuals and developers have been unable to meet payment of their loans and the bank has had to exercise the guarantees associated with these loans.
Only occasionally. For some months now all banks, under pressure from the Bank of Spain, are applying a minimum price policy in order to sell their portfolio of properties as quickly as possible.
Costs of buying property in Spain
As a buyer of property in Spain there are a number of costs and taxes over and above the property price that you will have to pay. Depending upon whether you are buying a new property from a developer, or a resale property from a private individual, you will either have to pay VAT & Stamp Duty, or a transfer tax. The different cases are explained below, along with the other costs and taxes that are common to both cases.
NEW BUILD FROM A DEVELOPER (OR BANK)
VAT & Stamp Duty (IVA & Actos Jurídicos Documentados – AJD)
These taxes apply for residential properties being sold for the first time (never previously occupied), or for commercial properties and plots of land. This is a national tax, so VAT is the same wherever the property is located (with the exception of the Canaries, which have their own version of VAT).
At present VAT (known as IVA in Spain) is 10% on the purchase price of residential properties (villa, apartment, etc), and 21% for commercial properties and plots of land.
The Stamp duty (known as AJD) is 1% of the price of the purchase, but might go up in some regions, so be sure to check on the latest rate. Both VAT and Stamp Duty are paid by the buyer, and if any deposit is paid before completion of the sale, such deposit will be subject to VAT at the moment of payment of this deposit. In this scenario there is no transfer tax to pay.
Transfer Tax (Impuesto sobre Transmisiones Patrimoniales – ITP)
This tax applies if the property is deemed to be a second or posterior transfer (i.e. not the first time a newly built home is bought), and is paid by the buyer. If any deposit is paid before completion of the sale it is not subject to ITP pro rata. However the full amount of ITP still has to be paid upon completion. In this scenario there is no VAT to pay, and stamp duty is already included in this tax.
The Transfer Tax rate is ceded to the autonomous regions, who can choose to apply the general rate, or their own rate.
The general (national) rule of ITP is 7%, but many of the autonomous regions have applied higher local rates. The rate you pay depends upon the autonomous region where you buy. In Andalucia it is 8%.
Income Tax Provision When Buying From Non-residents
If the seller is not a Spanish resident, the buyer has to withhold 3% of the purchase price and pay it to the tax authorities (application form 211). If this is not done the property will be considered by the tax authorities as the asset backing the capital gains tax liability of the seller. This condition is very unlikely to apply when purchasing from a developer.Costs that affect both new build and resale property purchases
You are strongly advised to hire a lawyer to help you during the buying process. Your lawyer drafts and reviews contracts on your behalf and can explain all the legal and administrative issues you face. Your lawyer should also carry out any necessary due diligence (checking ownership claim of the seller, charges on the property, permits, etc.) and arrange all the required documents to complete the process (property registration, tax payments, etc.).
A lawyer – Abogado in Spanish – will charge you according to the service you require. This will vary according to the complexity of the purchase. Many charge around 1.5% of the purchase price in legal fees.
If you choose to buy with a mortgage then this will incur several additional costs. First there will be the property valuation that the mortgage provider will require before granting the mortgage, this is paid for the by the buyer and can cost around 800 Euros. Then there will be the costs of the mortgage itself. This varies according to the provider, and even according to the particular branch. However there is usually some kind of opening fee of around 1% of the value of the mortgage. Finally a mortgage will increase the Notary expenses. ( Many Banks will waive this fee is you are buying a Repossession )
Notary expenses are nearly always paid by the buyer and are calculated in relation to the purchase price declared in the deeds of sale. To be on the safe side you should calculate Notary fees as being 1-2% of the purchase price declared in the deeds of sale.
Property Registry Inscription Fees
Expenses related to inscribing the sale with the land registry are also nearly always paid by the buyer, and are calculated in relation to the purchase price declared in the deeds of sale. To be on the safe side you should calculate 1% of the purchase price declared in the deeds, though once again it depends upon the property and the area, and the fee could be considerably lower.
Plusvalía Municipal Tax
This is normally paid by the vendor, but it can become a problem for the buyer if the vendor fails to pay it. Buyers have to be particularly careful with this tax when the vendor does not live in Spain.
There will of course be costs associated with owning a property in Spain. Some of these will be maintenance costs, such as cleaning, repairing, reforming, utility bills, rubbish collection, and so on. These will be determined by the size and type of the property you buy. Obviously a large villa with a garden and pool will require much more effort and cost to maintain than a small apartment.
Apart from the general maintenance costs referred to above, there are a number of costs in the form of taxes and fees that property owners in Spain face.
Property Ownership Tax (Impuesto Sobre Bienes Inmuebles – IBI)
A local tax on the ownership of property in Spain, irrespective of whether the owner is a resident or not. Calculated on the basis of the valor catastral (an administrative value that is usually lower than the market value, sometimes considerably so) set by the town hall the tax rate goes from 0.4% – 1.1% of the valor catastral depending on the Spanish region.
Annual Wealth Tax (Impuesto Sobre Patrimonio)
This tax has been changed several times in recent years.
Personal Income Tax (Impuesto sobre la Renta de No Residentes – IRNR)
Non-residents who own property in Spain have to pay an annual income tax that varies according to whether the property is rented out or not.
Not rented out
Non-resident property owners who do not rent out their property and who do not have any other source of income in Spain pay income tax based on the value of their property. The tax rate is fixed as 25% of 2% of the valor catastral of the property.
The tax on a property with a valor catastral of 700,000 Euros would be as follows:
Property value for tax purposes = 700,000 Euros
Taxable base (2%) = 14,000 Euros
Tax (25%) = 3,500 Euros
If non-residents rent out their property and receive an income in exchange, they are obliged by law to declare this income and pay taxes on it. The taxable base and the tax rate will be determined by the laws as they apply to each person’s particular circumstances (taking into account the double taxation treaty – if any – between Spain and the country of origin of the non-resident). In many cases non-residents simply pay a flat rate of 25% of the gross income they earn from their property in Spain.
Residents in Spain will have to pay the income tax based on their income earned during the year. The tax rate depends on the level of income.
Owners of property that is part of any development, building, or complex in which common zones are shared with other owners are by law obliged to be members of the community of owners, know as the Comunidad de Propietarios. This will entail paying community fees for the upkeep of the common areas, and any other services that the community vote for. The fees will vary according to the magnitude of the common areas, the costs of maintaining them, and the services that the community vote for. A budget for annual community expenses is approved by majority vote of all owners (or representatives) who are present at the annual general meeting of the Comunidad de Propietarios.
Household insurance will vary according to the circumstances of the owner and the type of property. However it should be born in mind as a cost that all property owners will face.