Property Purchase Process | Property Purchase Costs | Mortgage Finance

Introduction:

Spain is currently the most popular country for Britons to purchase property abroad and 761,000 Britons have already emigrated there according to a recent survey by the Institute for Public Policy Research (December 2006). This reflects the fact that the Spanish property purchase is far from insurmountable. The Spanish market is very fast moving and in some cases it can be just days between signing a private purchase contract (the Spanish equivalent of exchange of contracts in the UK ) and completing on a sale.

However, Spanish legal and tax concepts are very different to those in the UK and it's essential you engage the services of a good lawyer versed in both UK and Spanish law. Above all, you should obtain sound, independent legal advice before you sign anything or part with any money to ensure your interests are protected. Your lawyer should be bilingual to ensure that both advice and translations of contracts are accurate.

Before you even start to consider the financial and legal complexities of buying a house in Spain, you should make sure you have the money to cover all potential costs. Your first move should be to visit an accountant versed in overseas property purchases to discuss all potential costs with her. It is worthwhile to obtain a tax report of the property in the first instance in order to ascertain the most tax efficient way to structure the purchase. For example, it might make sense from a tax point of view to purchase your Spanish property through a company or offshore structure.

1. Finding the right place

The first step in the purchase process is to consider what kind of property you are looking for, what purpose will it serve and which areas you're prepared to consider. Other than price, a key question is the issue of how much work you are willing to undertake. At one extreme, you could take on a renovation project requiring a lot of hard work, at the other end of the spectrum you could purchase a modern apartment in a serviced complex with all amenities on site.

Once you have an idea of the kind of place you're looking for, you can start your search. With the explosion of media specialising in property – magazines, websites, even TV channels now – it's relatively easy to get a flavour of the kinds of property that are available in your chosen areas without leaving the comfort of your home. However, ideally you should also visit your selected area and meet with estate agents (imobiliarias) who will show you round a selection of properties which match your criteria. Most Spanish agents have English-speaking staff. It's advisable to use a registered real estate agent (API).

Important things to check for when looking round properties include damp, subsidence, access and boundaries. It's useful to go in prepared with a checklist, then take notes and photos as you walk around. It's also always a good idea to talk to other British owners in the area.

2. Organising legal representation

Once you have found a property you're interested in, the next thing to organise is legal representation to ensure your interests are properly protected. There are three legal professionals you will probably deal with:

A public notary (notario)
– Unlike traditional lawyers, Spanish notaries (notarios) are neutral government legal representatives who act as witnesses to and registrars of property transactions. Under Spanish law, only deeds of sale (escritura de compraventa) witnessed and authorized by a notario can be registered at the land registry. He or she will prepare all the appropriate paperwork and ensure this has been filled out correctly according to the wishes of both parties. The notario also has a responsibility to make sure the appropriate property taxes are paid on time. Finding a notario is relatively straightforward. The local phone book will have names and numbers, and the estate agent will be able to put you in contact with the notarios they use regularly.
A reputable English-speaking Spanish solicitor (abogado)
– It is essential to find an independent lawyer to represent your interests and offer impartial legal advice. If an estate agent recommends a lawyer, always be aware that this lawyer may be working for the seller and therefore may not have your best interests at heart. Spanish Abogados are registered with the Spanish Law Society (Colegio de Abogados) or, if acting in the UK, with the Law Society or Bar Council.
A UK solicitor versed in Spanish property law
– Although you may be able to find a reputable, independent Spanish solicitor who speaks good English, this solicitor is unlikely to be versed in UK law. So it can be advisable to also engage the services of a UK professional who has specialist knowledge of Spanish property law and tax in addition to a Spanish solicitor to advise on the international dimensions of the transaction and on the critical issue of UK taxation.

3. The survey

Although a survey is not a compulsory part of the purchase process in Spain, a survey is nonetheless advisable for your own peace of mind as well as giving you an idea of what to budget for in terms of renovation and repairs. A survey is particularly advisable if you are buying a property without a builder's warranty. (Spanish law stipulates that properties under 10 years old must be guaranteed by their builders against major structural defects). If you are taking out a UK mortgage then you will need to have a survey carried out in any case.

Important things to check include:

The plan of the land at the land registry and the plan of the building which should be included with the property details
The land boundaries and whether there is any construction work planned on the land neighbouring the property
It's useful to measure the living space in square metres as this will give an idea of the selling price per square metre, which is a common yardstick used to negotiate on price in mainland Europe
Don't just believe what it says on the plan or in the details. Check for yourself, as any discrepancy could work to your advantage in any negotiations over price

A full structural survey will usually cover all the main issues.

In Spain, your lawyer won't necessarily carry out all the required background checks whereas your surveyor (geometra) will, including not only the physical and structural survey, but also the full check of ownership and land registration records.

4. Obtaining an NIE number

Before you can undertake any financial dealings in Spain – such as opening a bank account or buying a property – you will first need to obtain an NIE (numero de identificacion de extranjeros) – your fiscal number as a foreigner operating within Spain; this applies equally to residents and non-residents alike. Estate agents are unlikely to take you very seriously until have an NIE so it's best to get this sorted early on.

You can now no longer apply for an NIE through your legal representative and the only way to get one is by going in person to a Foreigners' Department at the National Police Station. You will need to bring with you two certified copies of your passport, two passport-sized photographs, details of your occupation, your maiden name (if applicable) and the names of your parents.

5. Negotiating a reservation contract

Now you are ready to start negotiating over price. Many Spanish vendors will assume foreign buyers are relatively ignorant of local prices so you should make sure you research the local market thoroughly to give you a sense of what you ought to be paying for the property. If you identify alternative properties in advance that you would also be happy to buy, it will be easier to walk away from the deal if you don't secure your minimum requirements, making your negotiating position stronger.

In Spain, there is a local practice where some of the purchase price is paid “under the table”. This means that some of the price is paid to the vendor in cash, undeclared to the tax authorities, while the balance is paid in the normal visible manner. Although the practice is common, it is illegal and there are severe penalties. Furthermore you could end up with a larger capital gains tax bill when you sell up than you would otherwise have.

Once you are happy with the price you normally have the option of paying a small reservation fee for the property to be taken off the market while your lawyer checks the proposed private purchase contract. This is an informal agreement and will not commit you to purchasing the property. However, if you renege on your expressed interest in buying, you will normally forfeit your reservation fee.

6. Arranging your mortgage

Now you are ready to arrange mortgage finance for your purchase. See below for full details of eligibility, availability, terms and rates, etc.

7. Legal investigations

You should now instruct your solicitor (abogado) to carry out certain essential legal checks on the property to start the conveyancing process. These include:

Confirming the vendor actually owns the property and has legal authority to sell it by checking the title deeds (escritura) against the land registry certificate
The land registry certificate will also detail any charges or mortgages that exist on the property
Your abogado will ensure that there are no outstanding taxes or utility bills to be paid

8. Signing a private purchase contract

Once all the necessary legal checks have been completed satisfactorily, you will be ready to sign a private purchase contract (Contrato Privado de Compraventa). Before this stage you should have had the contract translated into English and ideally have English-speaking assistance on hand during the signing.

The private purchase contract details the finer points of exactly what you are purchasing, and includes all the fundamental information about the sale such as the purchase price, the list of fixtures and fittings included in the sale, and the completion date when the deeds will be signed and the property transferred into your name.

This agreement commits both buyer and vendor to complete the transaction and at this point the buyer must pay 5-15% of the purchase price as a deposit. If the buyer walks away from the deal subsequently, this deposit will be forfeited; if the vendor walks away, they are liable repay the buyer twice the value of the deposit in compensation and the purchase may retain the right to redress in most instances.

In Spain there is no requirement to witness the signature of the parties to a private contract.

9. Completion

After all the legal paperwork has been completed, you will be ready to sign the Public Deed (escritura de compraventa). This is the moment of truth when ownership of the property passes from vendor to buyer. The notary (notario) must be present at this event to formally witness and register the transfer of ownership on behalf of the Spanish government.

Both parties will need to provide passports or other proof of identity and unless you speak good Spanish, the notary will insist that a translator is present to ensure you understand the full implications of the contract you are entering into.

Upon completion, the buyer must pay the balance of the purchase price, all professional fees, transfer taxes and notary fees. Copies of the deeds are then sent to the Land Registry and the tax office.

10. Registration of title

Once the Public Deed (Escritura de Compraventa) has been signed, it must be registered with the local land registry (Registro de la Propiedad). Registration is essential to protect the purchaser against third party claims against the vendor. This is organised by the buyer's Spanish lawyer (abogado). This finalises your ownership at the Land Registry office and the tax office - you are now officially the owner of your Spanish property!

Special situations and exceptions:

Off-plan property:
If a property is purchased off-plan, it is normal practice for payments to be made in stages, with the balance being paid on completion of construction. Spanish law obliges developers to guarantee these payments (often through use of a secure escrow account) as well as the properties themselves against defects up to ten years after completion of construction; these guarantees are compulsory and you shouldn't buy off-plan property in Spain if the developer doesn't offer them.
New build property:
If you're buying new build, there may also be a preliminary supplemental deed to sign in addition to the normal “escritura”. This is known as the “contrato de infrastructura” and is later confirmed by the notary with a second escritura called the “escritura de obra nueva”.

The stages outlined above are the normal steps involved in buying property in Spain . However, there are multiple variations on these especially at the start of the process.