Applying for a mortgage or remortgage during COVID-19

Katherine Walkerdine from Mortgage Direct – one of Spain’s leading mortgage brokers – describes how the mortgage application process has been affected by COVID-19.

Can I apply for a mortgage right now?

Yes! As one of the leading independent mortgage brokers in Spain, we are regularly asked about the impact COVID-19 is having on mortgage lending here and if it is still possible to apply for a mortgage.

The positive news is that the banks are very keen to receive mortgage applications right now and, whilst bank staff are all working from home for the time being, it is still possible to send new applications and get them approved. For this reason, we are encouraging potential buyers to start the process early as this will save time further down the line and it’s a big advantage to have a mortgage offer ready for when they start viewing properties. Knowing what mortgage amount and conditions they are eligible for in advance means they can prepare properly and view the right properties, which is beneficial to them, the real estate agent and also the seller.

How long does it take to get a mortgage approval?

We have realised over the last few weeks that turnaround times with the lenders are not that badly affected. Whilst it is generally taking a little longer to confirm mortgage approvals than prior to when the state of alarm was introduced (which was 1-2 weeks), one of our advisers recently submitted a mortgage application to one of the main lenders and received the approval within three working days. The client was delighted by this and the valuation visit was then arranged within a few days.

Have valuations and the notaries been affected?

Through our own contacts at the valuation companies, we are able to ensure that properties can be visited and valued without delay, provided that keyholders are ready and willing to attend the visits. Further encouraging news is that, at the time of writing, we have not seen any signs yet of properties being devalued.

Although the notaries are providing a reduced service, there are many who are “open for business” and we’re seeing completions go through with some additional measures in place to protect the health and wellbeing of those who are required to attend.

One of the main banks recently sent us the following bulletin, which is encouraging:

“Most Notary offices are still open for business as usual and signing mortgages where all parties can attend and are willing to continue (with obligatory, masks, gloves and own pen!). Yesterday our valuers also confirmed that they are continuing to attend valuations. So as long as the key holder agrees, we can progress as normal.”

Will the banks reduce maximum lending amounts during or after COVID-19?

We have been asked a few times recently for our opinion on the banks’ lending criteria and whether we think they will reduce the maximum loan-to-value amounts (to below 70% for non-residents or 80% for residents). Our view is that it is very unlikely that these long-standing maximum borrowing levels will change, especially given that banks didn’t reduce them at all during the global financial crisis of 2007-08 or haven’t at any time since then.

What are the three main reasons for starting the mortgage process now?

So just to summarise, we believe there are three main reasons why you should start the property buying process right now:

1. By having a valid mortgage offer when you are viewng properties, this gives you a significant advantage with the seller over other buyers who need finance but have yet to apply for it.
2. It saves you stress and time, so that when you start looking at properties or put an offer in on a property, you have the peace of mind knowing the finance is in place ready.
3. The initial approval provides you with a clear understanding of your mortgage repayments and the costs involved.

Fortunately, all of our mortgage advisers work remotely and are well-equipped to work as normal. As we offer a telephone and e-mail based service, we can continue to assist you as we have up until the introduction of the state of emergency in Spain on 14th March, so please get in contact if you have seen a property you are interested in buying or if you wish to start the process now to have your mortgage offer in place for when you’re ready to buy. Rest assured that initial approvals are valid for around 3 months and can easily be renewed with our assistance.

Remortgages (also referred to as subrogation)

What are the advantages of remortgaging?

If you have an existing mortgage on a property you own in Spain, by transferring the outstanding borrowing to another lender, you may be able to benefit from reduced monthly mortgage payments so that you save money each month. This can be done by reducing the interest rate and/or increasing the term of the mortgage.

Two big changes have recently occurred that have made remortgaging much easier and more cost-effective than it has been in the past. The first was when set-up costs for mortgage borrowers were significantly reduced by a Government Decree in late 2018. The second came via the new mortgage law introduced in 2019, whereby existing lenders are no longer able to match any offer from a new lender and be guaranteed to retain the existing mortgage by doing so.

It is good to know that the rates offered for remortgages are the same as those for mortgages on new purchases and will depend on your profile. Many clients had to take out their initial mortgage with ancillary products attached, such as life cover, which is usually expensive in Spain. The good news is that by remortgaging, not only can you benefit from a lower interest rate and reduced payments, you are also not necessarily obliged to take out new products such as a life insurance policy.

Am I eligible for a remortgage?

To see if you are eligible, we will need to know the following information:

• Name of the existing lender
• Original price of the property (as declared in the deeds)
• Realistic idea of current value of the property
• Amount of the original loan currently outstanding
• Remaining term left on the mortgage and end date
• Current monthly repayments
• Existing interest rate (if variable, we need the margin over the Euribor, if fixed, please confirm and for how long)
• Early redemption penalties (if any)

What else do I need to know?

• Usually the banks affordability criteria states that roughly 1/3rd of your net monthly income has to cover your existing monthly debts (including rent and in some cases private school fees, if applicable) plus the new repayment amount post-remortgaging
• The loan to value (LTV) cannot be more than 60-70% if you are a non-resident or 80% if you are a fiscal resident in Spain
• If your interest rate is currently at around 2% or below, it is probably not in your interests to remortgage/subrogate
• You can usually only have a fixed interest rate if your earnings are in Euros. Having said this, variable rates are also very attractive starting at around Euribor + 1.15% for non-residents and Euribor + 1% for residents

This article is brought to you by Mortgage Direct. Learn more about them at www.mortgagedirectsl.com.

Alternatively, you can complete the short form and one of their advisers will be in contact shortly.