# fuerteventura mortgage dramas



## Jock719 (Nov 7, 2013)

Well we have found some nice properties in Caleta, Fuerteventura, and we are attempting to buy one....after a visit to the bank to find out about a mortgage both Mrs Jock and I were staggered to find that we were offered nearly 5%....which is a bit on the dear side! We are looking at a golf villa either throug an agent, private sale or a repo and in this connection my questions are:
Has anyone obtained a mortgage from a local bank here to finance a property and if so were the terms any good?, is it best to try and buy a repo from a bank, do they offer better terms for such properties, and finally this thorny issue of offers, we can't find out what the protocol is for offers, we have been told by many local people to make offers at half of the stated price especially for bank repos...on the other hand the estate agents we have been dealing with are telling us that there is little possibility of making an offer.....anyway, we are selling our UK house and coming out with a good deposit so we can't understand the banks poor mortgage offer (solbank)....any thoughts would be most welcome


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## zenkarma (Feb 15, 2013)

Jock719 said:


> ...finally this thorny issue of offers, we can't find out what the protocol is for offers, we have been told by many local people to make offers at half of the stated price especially for bank repos...on the other hand the estate agents we have been dealing with are telling us that there is little possibility of making an offer....


Ahh yes the age old problem of how much should you pay for a property. The answer of course is whatever you're happy and comfortable in paying. In other words what the property is worth to _you_. That may bear no resemblance whatsoever to what the buyer and/or Estate Agent and/or Bank think it's worth.

As far as I'm concerned, there's no protocol for negotiating and settling the price of a property. It's worth whatever the buyer is prepared to pay and the seller is prepared to accept, end of story. To arrive at that figure, you have to negotiate and negotiation is an art in itself.

It's not easy to value property in the current Spanish property market due to the significant price falls many areas and properties have suffered. There are a couple of things you can use to at least arrive at a ball park figure. 

One is the price per sq metre which will vary somewhere between €1,000-1,500 a sq metre depending on location, quality of build, fixture, fittings and so on. So a 50 sq metre apartment would be priced somewhere between €50-75k. Another is the likely rental income the property would generate which is generally around 5% of capital value. So if that same property rents out at €250 a month you can work out the capital value as €250 x 12 x 20 (100/5) = €60,000.

So now you have three figures, €50k, €60k and €75k for the same property. You now have a ballpark range of values for that property. You also know that if the advertised sale price is €90k it's well over-valued!


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## 213979 (Apr 11, 2013)

Two things:
1. Repos offer NO guarantee, even if they are new properties. We bought from a builder and have a 10 year guarantee. If we had bought from the bank, all bets would have been off.
2. If you buy cheap, the government might send you a letter asking for more taxes. The government didnt believe we paid as little as we did for our place. They stated the home value was 20k more than we paid. So, we owed them 400 more in tax. It was cheaper to pay than to fight it.


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## Jock719 (Nov 7, 2013)

Thank you both, we have just returned from viewing a two bed villa for which the vendor wants 254k on the same street as we have viewed a three bed villa on for 150k....madness, utter madness. Mrs Jock has now resorted to consuming vast quantities of amontillado sherry before asking the price of anything....I think a tent on the beach might be all we can get....


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## zenkarma (Feb 15, 2013)

Jock719 said:


> Thank you both, we have just returned from viewing a two bed villa for which the vendor wants 254k on the same street as we have viewed a three bed villa on for 150k....madness, utter madness.


Yep, pricing property in this current market isn't going to be easy. Personally, I wouldn't be sinking much money into the Spanish property market at the moment because I would consider it to be too much of a risk. Prices are likely to fall further before they rise, if they rise and it's hard to see where the demand is coming from for them to rise. Although having said that, I think the Canary Islands is probably less of a risk than mainland Spain.

Renting might be a better option to consider. It avoids the need to wrangle with mortgage/banks, it gives you the flexibility to move if you want/need to and it avoids investing in an unstable property market. You might be better off re-investing your house sale proceeds into another UK property and using the rental income from that to fund a rental property in Fuerteventura.

There's lots of options to consider but only you really know what you want to do and what the future might hold for you and your wife.

Buying versus renting both have advantages and disadvantages.


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## gus-lopez (Jan 4, 2010)

& there's no guarantee buying from the bank that the property will necessarily  be legal.
Personally I don't think that any Spanish mortgage is 'good' when viewed through UK eyes. 
At the outset they build in all the penalties that will apply in the event of defaulting & what people don't realise is that they all apply the instant you default!
If you are going to take on a mortgage you need expert advice of what everything is in the document & from someone who can , & will, explain all the meanings/implications & not assume that 'everyone knows that '.


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## NickZ (Jun 26, 2009)

Nothing forces you to take a Spanish mortgage. Ask your UK bank if they offer or know somebody offering mortgages abroad.

If your income is in £ getting a mortgage in £ has the advantage of not forcing you to take a risk on the exchange rate.


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## oronero (Aug 24, 2012)

elenetxu said:


> The government didnt believe we paid as little as we did for our place. They stated the home value was 20k more than we paid. So, we owed them 400 more in tax. It was cheaper to pay than to fight it.


Does this mean that when you come to sell the property in the future, capital gains are calculated using the figures that they estimate that you have paid for the property initially rather than what you actually paid...so in theory you have a instant potential gain not subject to capital gains tax in the future?


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## maxd (Mar 22, 2009)

oronero said:


> Does this mean that when you come to sell the property in the future, capital gains are calculated using the figures that they estimate that you have paid for the property initially rather than what you actually paid...so in theory you have a instant potential gain not subject to capital gains tax in the future?



I guess the higher figure is applicable but you never know the government likes to win both times. Then again you could get the next buyer to pay you half in cash like the Spaniards do to mitigate that


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## zenkarma (Feb 15, 2013)

oronero said:


> Does this mean that when you come to sell the property in the future, capital gains are calculated using the figures that they estimate that you have paid for the property initially rather than what you actually paid...


It's an interesting question, to which I'd like to know the answer.

Does CGT use the figure you paid and is registered at the notary or the figure the tax authorities deem the property is worth and have charged you tax on.

Because as far as I'm concerned, the tax authorities can't have it both ways because they'd be contradicting themselves.

I suspect that given the regional/local tax authorities charge the purchase tax and that the Hacienda or central government tax authority charge the CGT they will indeed try to have it both ways.

Which should be challenged legally really because you can't have two different sets of figures for the purchase price of a property.

Just another example of how the fragmented government in Spain works. In many ways Spain really is still very third world.


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## maxd (Mar 22, 2009)

"Just another example of how the fragmented government in Spain works. In many ways Spain really is still very third world."

Stamp duty is too high, the more stupid the tax, the more people do stuff to avoid it, so Spaniards often pay 50% of the house in cash. To counteract this the government have decided what your property is worth. The real answer is drop stamp duty to around 3% then less people will try and avoid it.


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## oronero (Aug 24, 2012)

maxd said:


> "Just another example of how the fragmented government in Spain works. In many ways Spain really is still very third world."
> 
> Stamp duty is too high, the more stupid the tax, the more people do stuff to avoid it, so Spaniards often pay 50% of the house in cash. To counteract this the government have decided what your property is worth. The real answer is drop stamp duty to around 3% then less people will try and avoid it.


However if you are selling a property to purchase another and it is your main residence there is no capital gains to pay if you are using all the collateral in the next purchase.

Capital gains is also payable in the UK if the property sold is not the main residence and possibly if the gain is above your yearly allowance when exiting the market with your main residence, though I am not sure on this last point.


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## maxd (Mar 22, 2009)

oronero said:


> However if you are selling a property to purchase another and it is your main residence there is no capital gains to pay if you are using all the collateral in the next purchase.
> 
> Capital gains is also payable in the UK if the property sold is not the main residence and possibly if the gain is above your yearly allowance when exiting the market with your main residence, though I am not sure on this last point.


sort of

Reductions

There may be reductions available depending on whether you acquired the property before or after 31 December 1994 and whether or not it was sold after 20 January 2006.

If you bought your property after 31 December 1994, the gains are taxed in full (subject to the main home relief/exemption – see below).

Where a property acquired before 31 December 1994 was sold prior to 20 January 2006, the full gain was reduced by 11.1% for every year (or part-year) owned prior to 31 December 1994 - so property acquired before 31 December 1986 was wholly tax free.

Where the asset was acquired before 31 December 1994 and is disposed of on or after 20th January 2006, the gain needs to be time-apportioned into:

the gain arising before 20 January 2006, and
the gain accruing from that date
The reduction is only available on the portion of the gain accruing before 20 January 2006. Gains accruing from 20 January 2006 are taxed in full. Gains are treated as accruing evenly throughout the period of ownership.

Main home relief/exemption if under 65

Reinvestment relief is available to Spanish residents when they sell their main home and invest in a new one.

To qualify for this relief, the property must be your main residence and you must have lived in it continuously for at least three years (less if you had to sell because of a change of job, marriage etc.) from the date of sale or completion. You must then buy a new main residence within four years, starting two years before the sale.

The tax relief is based on the proportion of the sale proceeds reinvested into the new home. If the new home costs more than the sale price of the old home, then all of the gain is exempt. If only 50% of the sale proceeds are reinvested, then only half of the gain is exempt. If the property being sold has a mortgage on it, then it is the net sale proceeds that need to be fully reinvested to escape capital gains tax.

In order for the reinvestment relief to apply, the taxpayer must declare the gain on their Spanish tax return together with their intention to reinvest the proceeds into a new main home. If the required declarations are not made, the relief is likely to be denied by the Spanish tax authorities.

Note that reinvestment relief is only available to Spanish tax residents (you will need to have registered as a resident and be paying tax locally). However the main residence does not need to be in Spain to qualify for the relief, nor does the new home.

Main home exemption if over 65

If, as above, you have lived in the property as your main home for three years or more, if you are over 65 years of old when you sell it, the gains are exempt from capital gains tax even if you do not buy a new property.

Again, you must be able to show you have been tax resident in Spain.


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## oronero (Aug 24, 2012)

Thank you for a comprehensive reply.


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