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Legal InformationAlthough not compulsory, we strongly advise you use a Lawyer (Abogado) when buying a property in Spain to protect you against some of the pitfalls of buying a property overseas. If you do not have your own Lawyer, we can recommend or help you find one.
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1. A bank account is set up by or on behalf of the client in their name. |
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2. Once the client has chosen a property, the client is usually asked to transfer a deposit for the property into their account and possibly additional amounts to cover third party adviser costs, such as legal fees. |
3 .The Lawyer will contact the vendor to obtain details of the property and any legal documents relating to it, following receipt of which they can start carrying out the necessary legal checks. These checks normally include:Contacting the Land Registry to see who is the rightful owner, the size of the plot, the built area on the plot, and if there are any financial debts relating to the propertyContacting "Catastro" - the body that measures plots etc. and then calculates the local taxes. They provide the Lawyer with a confirmation of the built area and the plot size, as well as if the land is urban or rustic, along with its classification, e.g. Class 2 Protected. Contacting the local Town Hall to check that all local rates are paid up-to-date, if any plans for new buildings have been granted, or if any plans to urbanise that area or any surrounding areas have been granted. |
4. When all the checks are done, the client will need to arrange payment of the legal fees, if these have not been paid already. |
5. The vendor signs the Purchase Contract in the presence of the Lawyer(s) and receives their deposit. At this point, a deadline for completion is fixed. |
6. When the time comes for completion, the Lawyer will make sure that the client has a detailed breakdown of expenses and therefore knows what money must be in the account in Spain. The money is transferred and the Lawyer will then prepare all the money with the bank, ordering the necessary cheques/cash. If the Lawyer has not provided the breakdown, then the client should discuss this with them – it is not the broker’s responsibility to provide the breakdown. |
7.Finally, the day for completion arrives and the Lawyer will accompany the client to the Notary for the final step - the signing of the deeds. At this point, assuming everyone is in agreement, the deeds will be signed and the money and keys are handed over. The property is now yours! |
JARGON EXPLAINED
Administration Fee
A fee usually payable to the mortgage provider if you decide to proceed with a mortgage application following receipt of a Mortgage Proposal.
Arrangement Fee
A fee you pay to the mortgage provider on completion of a mortgage deal. This amount is usually negotiable depending upon the provider.
Bank Opening Fee
This is a percentage of the mortgage amount borrowed (usually 1% - 2%) payable to the bank for services rendered in granting and processing the mortgage.
Completion
The point in time when the sale and purchase of the property are finalised and you become the owner.
Decision in Principle
This is when the bank agrees to lend you the mortgage, subject to certain conditions such as confirming your level of income and ensuring the valuation report is suitable for mortgage borrowing.
Escritura
This is a deed that legalises the purchase and is signed by the buyer, the seller and the notary. The buyer obtains a first copy of the deed once all taxes have been paid and the corresponding inscription in the Land Register has been done.
Euribor
European Inter-Bank Offered Rate. An index based on the interest rate for deposits in Euros at 12 months that is published by the European Central Bank. Most Spanish banks use this as a guide to determine the charges on a variable rate mortgage.
Guarantor
The principle of allowing a person or persons to guarantee any shortfall in a mortgage not covered by the borrower´s income. This can often be a parent or close family member.
Land Register
The Land Registry contains all acts, contracts or legal charges referring to a property, such as ownership or encumbrances.
Libor
London Interbank Offered Rate. It is the most active interest rate market in the world. It is determined by rates that banks participating in the London money market offer each other for short-term deposits. LIBOR not only applies to the Pound Sterling, but also major currencies such as the US Dollar, Swiss Franc, Japanese Yen and Canadian Dollar.
Loan-to-Value (LTV)
The amount of mortgage you are offered will depend on the lender´s valuation of the property. Lenders will normally only lend a proportion of the value, typically between 70 and 80 per cent. This is also referred to as LTV for short.
NIE Number
This is an identity number applied for from the "Policia Nacional" (national police) and sanctioned by the "Ministerio del Interior" (equivalent of the Home Office). This number will allow you to open bank accounts, apply for a mortgage and buy or sell property. You will also need an NIE to buy a car in Spain
Notary
The Notary acts as the public official when signing the public deeds, such as the sales or mortgage loan agreement. He is obliged to ensure that the purchase takes place in accordance with current legislation and to defend the interests of all parties, particularly the purchaser´s.
Nota Simple
This is a legal document containing the property registration details from which a lender can detect that the owner is who they say they are and if there are any legal holds on the property. It is an important document for lenders, as they will decide the suitability of the property for mortgage lending.
Power of Attorney
If the buyer or owner of the property cannot or does not wish to be present at the Notary´s office on the day of completion, they can nominate someone (usually a Lawyer or relative) to sign on their behalf.
Purchase Contract
Known as "Compra-Venta", this document is usually drawn up by the estate agent after a small deposit is paid to reserve the property for a period of time and will contain information shown on the Escritura.
Redemption Penalty
This is a percentage charge of the repaid amount levied by the bank should you pay off the mortgage in partial payments or as a whole before the end of the term. It compensates the lender for the loss of interest that would otherwise have been received.
Rustic
These types of properties are often found in the countryside and the purchase can sometimes be complicated. The LTV can sometimes be lower due to the increased risk taken on by a lender. It is important to find out who the registered owner is and if the square meters of the plot reflect what appears in the legal documents, as planning permission can be difficult to achieve.
Sales Tax
Also known as IVA in Spain, this tax only applies if the property is being sold for the first time and the seller is a property developer. This tax is 7% on the price of the purchase.
Stamp Duty
The buyer will always pay this tax to the tax office and usually by the lawyer representing the buyer. It is fixed between 0.5% and 1.5% on the price of the purchase, depending on the Spanish Autonomous Region. Also known as AJD.
Transfer Tax
This tax only applies if the property has been bought and sold before. The amount is 7% on the price of the purchase (6% in some cases, depending on the Spanish Autonomous Region in which the property is located) and the buyer always pays the tax.
Valuation
Professional independent valuation of the property to determine the current value in the market place and its suitability for mortgage borrowing.
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All text and images copyright Costa Blanca Properties |
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