So you have found the perfect home in the sun. Now what? How do you go from being just a sightseer to a Tenerife property owner?
Obviously some money has to exchange hands before the previous occupier is going to let you start bringing in your bits and bobs and making yourself feel at home.
Buying a property – How Does It Work?
The deposit that needs to be paid depends on the property you are buying. For a resale then generally 10% is required, however if you are buying an “off-plan property direct from the builder the deposit can be up to 25%. Contracts then need to be drawn up laying out the who’s, what’s, when’s and how’s of the agreement between both parties, such as the completion date and method of payment.
Before the title deeds (escritura) can be handed over, all the receipts and necessary paperwork relating to the property have to be checked to see that there are no debts outstanding.
You'll need all the originals of these documents on the day of completion at the Notary's office. The Notary will refuse to sign the escritura unless it has been clearly stated that you were aware that some receipts were missing.
• Obtaining a Nota Simple (Details all the information about the property as it appears in the land registry office)
• Checking that all I.B.I (local council rates) and Basura (Rubbish) have been fully paid up to date.
• Collecting the most recent electricity and water receipts also a certificate for the community fees, this must be signed and approved by the President of the community where you're buying
• Obtaining a copy of the deeds (Escritura)
Taxes and Other Costs
In addition to the sales price, bear in mind that you, the purchaser, will also have to pay approximately 10% of the agreed purchase price. This is made up of the following taxes and fees:
• 6,5% ITP tax (Impuesto sobre Transmisiones Patrimoniales) when buying resale property, or 7% IGIC (Canarian equivalent of VAT) if purchasing new property
• Notary fees
• Land registry fee
• Lawyers fee
It is fairly straightforward to apply for and obtain a mortgage and non-residents can get maximum 60% of the valuation price.
Provided you submit the requested information to the bank, which is very straightforward, the mortgage can be effective within minimum 3 weeks. The advantages of securing a local mortgage include extremely low interest rates; it doesn't reflect your country of origin; its tax deductible; and should you rent the property, the same account can be used as a debit credit account.
The only downside is that local banks, whether they have major international associations or not, will only finance you a percentage of the valuation price, or the actual purchase price, whichever is the lowest. Therefore, depending on the valuation, it’s sometimes worthwhile taking the time to compare what different banks will offer. The fees that the banks charge are:-
• Approximately 300 Euros for a property valuation
• 1% mortgage opening commission
• Insurance, varying from 120 – 240 Euros per year
• A fee for the Notary and Registration of the mortgage
If you have any more questions please contact Mortgage Direct to get expert mortgage advice and an initial assessment of your mortgage eligibility.
Frequently Asked Questions
What is a sales agreement?
A private document signed between the buyer and seller. It must state the following points:
• Details of the buyer and seller
• A legal description of the property
• The purchase price
• The form of payment and currency to be used in the transaction (banker's draft, cash, etc.)
• The completion dates and penalty clauses if these dates are not met (usually, if the seller withdraws after signing the contract he is liable to pay double the amount of the deposit, if it is the buyer that withdraws they will lose the deposit paid).
What if there's still a mortgage on the property?
If there is a mortgage on the property it will be cancelled on the same day that you sign at the Notary. Before this date, we will inform the holding bank to prepare the cancellation costs, and the amount that the seller still owes.
On the day of the signing a banker's draft will be made out for this outstanding figure including the costs and paid to the bank. This figure will then be deducted from the purchase price when paying the seller. The bank will then register the cancellation of the mortgage.
What does a foreigner need in order to buy a property?
The first thing is to apply for an N.I.E. (Number of Identification for Foreigners), which is basically an ID number that anybody with a financial interest in Spain or the Canary Islands is required to have. You'll also need to set up a non-resident bank account, which is a simple process, but again, we will handle all these administrative procedures for you.
Will we have to pay tax when selling a property?
Yes, as a non-resident you'll have to pay 3% of the new declared value as a retention to the Spanish Tax Office, but provided your accounts are in order you should get most of this back within five or six months.