Borrowing for a new build in Spain proving difficult

We have seen since early 2022 that borrowing for a new build in Spain has been difficult. More and more Belgian banks are reluctant to provide credit for a buy on plan. In this article, we explain more about our experiences.

Can you borrow in Belgium for a second stay in Spain?

You can borrow from a Belgian bank for a second residence in Spain. Usually, however, the bank will ask for a guarantee or security. Consider, for example, the (re)taking of a mortgage on property in Belgium or a pledge on a securities portfolio. Borrowing for a property in resale or finished new construction is then no problem.

However, we are increasingly seeing that Belgian banks no longer want to lend for an unfinished house, such as a buy on plan. In general, banks are willing to lend only the last instalment by notarial deed. Even in cases where the buyer can offer (more than) sufficient guarantees in Belgium and has a long-term relationship with the bank in question, a loan is not evident. And this while in 2020-2021 buyers could still easily borrow from most banks for a sale on plan.

Read more about financing options for a second residence.

Can you borrow in Spain?

To borrow for a new-build in Spain, you can of course turn to Spanish banks. The usual security then is a Spanish mortgage. Important note, however, is that you for a buy on plan can also only borrow the last tranche. This is because in Spain, the notarial deed of sale is not passed until the property is fully completed and only then can one register the mortgage. In fact, this practice results in the same situation as with Belgian financing.

Find out more about the pitfalls of a Spanish mortgage here.

What are the alternatives?

When buying on plan in Spain, you usually pay in several instalments. For example, at reservation, you pay an amount between EUR6,000.00 and EUR10,000. After that, at purchase agreement, you pay between 20% and 40% of the purchase price. There may be a third instalment of some 20% during the works. Finally, you will pay the balance when the sale deed is executed. Nowadays, when preparing your purchase, you can assume that you will only get the balance financed. This means you need to fund some 40% to 60% with your own funds. Therefore, ask for the payment schedule prior to viewing properties so that you know whether the purchase is financially feasible.

Here you will find more information on the steps in the buying process for new construction.

If you do not have the own funds at your disposal, alternative financing options depend on your situation. If you have property in Belgium that is for sale or you plan to sell, a conventional bridging loan is an option. We have also already seen the combination of a personal loan and a mortgage loan, where the personal loan runs until the mortgage deed is executed. Another example is the guarantee of a Belgian company for its managing director. Finally, we see more post-financing where a (Spanish) mortgage is established after purchase. However, such solutions are not cheap or not always opportune, so it is best to consult your financial adviser first.

Here are some more tips on borrowing for a second stay in Spain.

Do you have any questions about buying property in Spain? Then feel free to contact on.

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