When you apply for a mortgage to buy your primary residence or a second home, you should take into account certain unavoidable costs and taxes that you will have to pay to complete the operation.
Before we get down to the finer points, we are going to explain the differences between the purchase costs and the mortgage costs, because some are paid by the owner and some by the bank.
Costs of buying a property
In this section we explain the costs involved in buying a property, regardless of whether you need to take out a mortgage or not. Specifically, these costs refer to the notary fees, property registry fees, purchase tax, stamp duty and management fees.
Notary fees are an unavoidable cost when you buy a property, whether newly built or second-hand. These fees are regulated by the government, which means that you will always pay the same, regardless of the notary used.
Registering the deeds that the notary has signed also costs money. As with the notary fees, the property register is regulated by law and the cost of registering your deeds will depend on the final price of the property.
The amount you will pay for this tax depends on two factors: the price of the property (whether newly built or second-hand) and the region of Spain where it is located.
In this case, the main tax payable is VAT. In 2020 the rate is 10% in every region of Spain except the Canary Islands, where there is a specific tax known as the IGIC (General Indirect Canary Islands Tax), charged at 6.5%.
Remember, this tax is based on the final purchase price. For example, for a property with a final price of €250,000, the VAT will be €25,000.
Costs for the purchase of a second-hand property
In the case of a second-hand property, you will pay a property conveyance tax, commonly known in Spain as ITP. The amount payable will depend on the percentage that is applied to the notarised value of the property and the region of Spain where it is located, but it usually ranges from 6% to 10%. Large families (three or more children) and young people buying their first home are usually eligible for certain discounts.
The buyer is responsible for paying this tax and the amount will depend on the region of Spain where the property is purchased.
The purchase of a property involves so many different procedures that there is often no option but to hire the services of a professional to handle the payment of the taxes and sort out all the paperwork. Management fees are therefore something else to bear in mind, although they are an insignificant part of the overall costs.
In this section we explain the property appraisal, arrangement fees, stamp duty, notary fees, property register fees and management fees.
This is an essential aspect of the mortgage application procedure because the bank will use the appraisal value of the property you want to buy to determine the percentage it will finance, although this will generally be 80% of the purchase price or the appraisal value, whichever is lower.
The appraisal is carried out by an approved company of your choice, or you can use the services of a company provided by the bank. The purpose of the appraisal is to determine the value of the property based on a series of criteria: state of repair, square metres, location, quality of the materials and visual appearance, etc. The results of the appraisal enable the bank or lending institution to determine how much financing to grant you.
Appraisal costs are always paid by the buyer, and the report is only valid for six months from the date of issue, so you should bear that in mind.
Some banks waive the arrangement fee as part of their strategy to capture customers and facilitate the mortgage procedure. In any case, the maximum fee payable cannot exceed 2% of the principal loaned by the financial institution.
Stamp duty refers to the tax payable for registering a notarised document stating the mortgage amount. Under the terms of a new law passed in November 2018, the bank that grants the mortgage has to pay this tax.
As with the stamp duty, under a new law passed in 2019 the bank that grants the mortgage is liable for these fees, which are charged for notarising the mortgage agreement.
Just as property deeds have to be registered, it is also mandatory to register the mortgage agreement with the property register, even if you do not take out a loan, and this cost is also payable by the bank that grants the mortgage.
The bank will usually select a trusted management agency to take care of all the paperwork and administrative procedures related to the mortgage: handing over the registered deeds, invoices and all the other documents to the borrower. Nowadays, the bank also covers these costs.