Advice on buying a property in Tenerife

Thomaskatejosh

I am currently seeking advice about buying an apartment in Tenerife. I need around £100,000 (which will include legal fees etc) . I have been told that Spanish mortgages are quite a bit cheaper but will require approx 30% of toal as deposit due to fct that I will not be resideing there all the time.
This will be a 2nd property, and when I retire in 6 years I intend to spend winter months there. In order to finance the repayments I intend to let the property for most oy year.
The question is, do I go for Spanish mortgage or stay with the UK, plus, anyone know best way to get a loan for the deposit?, Thx

BobProperty

I'd be very careful about this venture. I looked into this market about a year ago and came to the conclusion that it wasn't worth investing in it. Have a search around the net for some forums of Spanish property owners (I can't think of any off the top of my head, all the links were on another computer). The basic feeling I got at the time was the following:
There is a heck of a lot of new stuff being built which will be heavily marketed by estate agents as they get more commission for new sales than re-sales. Possible over supply situation.
Don't believe the rental figures quoted as in some cases people only managed to rent places for 2-3 months of the year.
Spanish rental tax was 25% of the gross, off the top! i.e. you get €10,000 in rent, tax man wants €2,500. Never mind your mortgage or other expenses! The tax situation was more onerous than the UK (or maybe I'm just used to the UK and I'm being pessimistic)
The benefits come once you have retired and started living there (tax and otherwise).

Ian_W

Bob's done his research thoroughly, though some of the issues he raises are more pertinent to the mainland and there are ways around others . As you are planning to purchase to eventually live there rather than as a pure investment I wouldn't be completely put off by what he says. We owned an apartment in Lanzarote for 8 years before selling it last year and it proved a very good investment for us [click on my details then homepage to view - still letting it for the new owners].

To answer your specific questions, there are really 3 ways to raise the cash:
1. Remortgage your UK property, you'll need both the equity & earnings to allow this.
2. Borrow in the UK against your Canary property, you'll need the earnings but the mortgage will be against the foreign prop. When we bought only Abbey and RBS [Gibraltar] were lending in Spain, I believe LTSB, Barclays, Norwich & Peterboro and many more mainstream UK lenders now do overseas loans.
3. Borrow from a Spanish Bank, as you say LTV is usually 70% max - again I think they'll take your earnings into account.

We were advised to borrow so that repayments were in the currency we were earning in and did a combo of 1 & 2 covering both the mortgage and deposit. Problem with a Spanish mortgage is transfering currency to €uros, unless your letting income is from there. You are at risk not just with interest rates, which are lower but have been rising, but also with currency fluctuations. If you do go this route transfer through a broker [eg currenciesdirect] rather than your bank, as it's cheaper.

You really need to look at what's on offer over there to make a judgement about which is cheaper but if you do mortgage in Spain [either local or UK lender] the legal charges for the purchase will be quite a bit steeper. The mortgage has it's own deed which has to be registered and you will pay for the bank's lawyer, instead of 10% purchase costs - allow for 15%.

On letting, I wouldn't rely too much on that in the early days [no matter what estate agents may tell you!!] unless your property is on a "touristic licenced" complex when you can allow agents or the complex to let it for you. If it's a residential complex you can only let privately and it does take time to build up custom, however, the upside is that the Canaries is a 12 month destination, unlike most of the rest of Europe.

HTH & BoL. PM me if there is anything else specific I can assist with.

Symbeaux1

Ian w- is it true that the annual tax for a non-native is higher than that of a national? And that it's based on all of your capital in that country bank account and property not withstanding. ?

Cook_County

1. My understanding is that the mortgage interest and running costs are NOT deductible for Spanish income tax purposes unless the property is owned by a company. You need advice on this aspect before jumping.
2. Don't forget that Spanish inheritance laws are entirely different from the UKs so you will need advice on your Wills from someone who understands Spanish & UK law and taxes on death, so that your estate goes to who YOU want without you being taxed twice.

Ian_W

Symbeaux1 wrote: is it true that the annual tax for a non-native is higher than that of a national? And that it's based on all of your capital in that country bank account and property not withstanding. ?

I think the term is non-resident. TBH I'm not sure whether it is higher but at €180 [£120] Wealth Tax [2004 Spanish tax year] I couldn't be @rsed to find out, it's based on the "castral" [official listed, not market value] of your property and it's a very small % of it. As Cook and Bob say rental tax is 25% of gross declared rental income, however due to double taxation treaty it is deductable against any UK tax owed.

To make people green with envy Council Tax was €134 [£90] per anum on a small property.