It’s difficult to evaluate the current property market in Spain without understanding some events of the global economic crisis of 2008 which impacted property prices around the world. Risky and illegal lending practices in the U.S., like subprime lending (which involved bundling low credit scores and high-risk incomes, with average-rated lenders) meant that many mortgages were approved to low-income households with unstable work. These mortgages were often at higher interest adjustable rates that increased over time, making it increasingly difficult for borrowers to make their monthly repayments.
When housing prices began to decline in 2006, many borrowers defaulted on their mortgages taking some of these same financial institutions to bankruptcy, while exacerbating the economic situation in many countries.
European banks had also invested heavily in these U.S. mortgage-backed securities during the housing boom, and consequently suffered significant losses. In addition, these same European banks also engaged in their risky lending practices, such as offering mortgages with low down payments and high loan-to-value ratios, which also contributed to a housing bubble in several European countries.
Furthermore, the decline in financial markets led to a sharp contraction in global trade and investment. As a result, many countries around the world experienced severe recessions and high levels of unemployment.
Tougher Measures for Purchasing Property in Spain
In response to the crisis, the European Union implemented a series of reforms aimed to strengthen and monitor the banking sector. These included stricter lending requirements and the introduction of new capital and liquidity requirements for banks.
Property purchases in Spain after the financial crisis have mostly fallen under 2 categories:
a) Mortgages acquired under new, stricter regulations (by Spanish citizens with a proven stable income or foreign residents with a proven stable income).
These approved mortgages required a much larger down payment; usually 20% to 40% in the case of citizens and residents, or more for foreigners. The bank would lend a maximum of 70% to 80% depending on the borrower’s monthly income in relation to the loan amount.
b) Foreign cash buyers.
With these stricter measures in place, the growth in the real estate industry is certainly more natural than what happened in the early 2000s.
Safer To Buy Property in Spain Today
Buying property in Spain today is generally safer than it was in the pre-2008 era. This is mostly due to stricter banking regulations, and improved economic oversight. Current mortgage approvals are based on proven stable incomes and require substantial down payments, adding security to the lending process. Additionally, a significant portion of property purchases are made by cash buyers, further stabilizing the market. While no investment is entirely without risk, the Spanish property market is a lot more resilient than pre-2008, making it a comparatively safe option for those looking to buy property in Spain.
Use Your Own Lawyer When Purchasing Property in Spain
Use your own lawyer so that you can receive impartial advice and information on potential risks. This is particularly important in Spain, where some sellers, developers, or estate agents have pre-established relationships with legal representatives.
Spanish property purchases can involve complexities like unpaid debts tied to the property, illegal constructions, or disputed ownership. Your lawyer should check legal titles, land registry records, property boundaries, ensure that all taxes, debts, and utility bills are paid, and verify that the property complies with local planning laws.
Buying property in Spain has specific tax obligations, including property transfer tax, notary fees, registration fees, and, for non-residents, ongoing taxes like non-resident income tax. You will need clarity on all financial obligations, ensuring compliance, and advice on how to structure the purchase in the most tax-efficient manner.
For non-EU buyers, particularly those seeking a Spanish Golden Visa (for investments over €500,000), you will need a lawyer to help navigate the requirements and documentation to meet residency criteria.
Hiring your own lawyer is a valuable step to protect your investment, simplify the process, and give you peace of mind.
