At Spectrum Mortgages in Spain, we have observed an increasing interest in properties that need complete refurbishment and thus the mortgages to be had in this context. As with new builds, this is an interesting option from an investment perspective but the mortgage for this type of project works quite differently than a normal mortgage or a building mortgage for that matter. In this article, we have outlined how the Refurbishment Mortgage in Spain process works when taking on a property that needs refurbishment.
To purchase a property that needs more or less refurbishment can seem like a daunting task to many and for a good reason. It can be difficult to predict what you find behind the old walls and get a good overview of the exact budget, which can be scary. However, on the mortgage front there are actually quite good possibilities, if you are willing to take on a project like that, of course. In order to apply for this type of mortgage there is a structure that needs to be followed to make you eligible for the mortgage and it starts with a good amount of planning.
The first step is to find the property, which can be hard enough. Secondly, you will need to get a builder to come up with a budget and plan for the project. Once this is done the inevitable visit to the city hall must be done to present the budget and the project. As the city hall approves this, there will be tax due according to the proposed budget (this differs from region to region). When the approval is given and the taxes have been paid, you will have the necessary prep work done to present your project to the bank. The bank will then study the case and approve the operation if it is viable (read about affordability by clicking here).
And here is where it becomes interesting. Normally the Spanish banks will offer you a 70% or 80% mortgage depending on where you are a fiscal resident. In a refurbishment mortgage the bank will offer (e.g. a resident) 80% on the property purchase and then another 80% of the building related costs (provable through invoices from the builder). As long as the total mortgage does not surpass an 80% (or 70%) of the theoretical future valuation, which will be done by the valuation company based on the details in the project plan. The money for the refurbishment work as staged payments upon completion of previously agreed stages of the building process. Builders are used to this type of operation and will normally be aware of the process, which makes it easier to deal with.
This is an interesting possibility as you effectively have the option of adding value to a property while obtaining the mortgage on the supposed end value. Under no other circumstances is it possible to get this amount of mortgage, which makes it a very interesting possibility for people who are up for the challenge. It can be a stressful process and a significant amount of planning is required, but if you are able to cope with both, it also gives you access to a bigger mortgage as a percentage than when purchasing a move-in ready house. This effectively makes it an opportunity to access more money to reach a higher level on the property ladder within a shorter period.
At Spectrum Mortgages, we recommend that you speak to an expert in mortgages before entering into a project like this so that you have an idea of the viability of the project before investing too heavily in it. Should you be interested in hearing more, please feel free to contact us.
By Christian Severinsen – Managing Partner at Spectrum Mortgages in Spain