Getting ready to buy a property in Mallorca
Prior arrangements to enable property purchase in Mallorca
Buying a property in Mallorca requires that you make certain prior arrangements to enable the purchase, for instance opening up a bank account and hiring a lawyer/solicitor.
If you are serious about buying a property in Mallorca – if you are sure that this is what you want to do – then you should get these arrangements in hand at the very start of your property search. If you leave them until you have found a property you will have to act under pressure and in a rush.
Generally speaking, people make poor decisions and incur higher costs when they are forced to make decisions and make arrangements in a rush. And even if it is just to avoid the stress, start making these arrangements at the beginning of your property search and continue making them as your search proceeds.
You need to have everything in place so that when you find the right property you are ready to move with speed, not haste. The arrangements you will need to make will depend upon your particular circumstances. Nevertheless, most people will need to make some or all of the following arrangements to enable their purchase.
If you take out a mortgage in Spain you may find that you need to take out insurance specified by your mortgage lender. However, if this is not the case, or you do not use a mortgage, then you will need to make your own arrangements to insure your property.
There are many English-speaking insurance brokers operating in Spain (as well as brokers in the UK offering insurance for property in Spain) and you are unlikely to have any difficulty arranging insurance. Ideally, you will need insurance cover to start the moment you take possession of the property but in many cases, you won’t be able to get a binding quote until a couple of weeks before the policy is due to start. However, you can and should look into the question of insurance and try and find a good broker when you first start looking for a property. Doing so makes it easier for you to get the best quote with the least hassle when the time comes.
There are many other things that you can look into at this stage, for instance, surveyors, appraisal companies, furniture providers and security companies. Anything you can do to bring forward the work and get everything in place before you buy will help you to stay in control of events rather than the other way around. If you have balanced the workload over the period of your search you will find the negotiation and purchase stage much easier and less stressful. It also enables you to evaluate and select the best products and providers and keep costs down.
Open a foreign exchange trading account
Spain is part of the Euro-zone, which means that you will need Euros to buy property in Spain. The amount of Euros you will need will depend upon the value of the property and the size of the Euro mortgage if any, that you use. Basically you will need Euros to pay for all the costs (property and transaction costs) that your Euro-mortgage doesn’t cover.
If you already have your funds in Euros then you will not need to buy them. However, most British people buying a property in Spain hold their own funds in Pounds Stirling rather than Euros, which means that have to buy Euros before they can purchase a property. Generally speaking, the most expensive way to buy Euros is from your high street bank, and the cheapest way is from a specialist currency broker. The difference in price for the same amount of Euros on the same day can add up to many thousands of Pounds so this is certainly an issue to pay attention to.
To buy Euros at a competitive rate you will need to set up a trading account with one of the specialist currency brokers. This can usually be done quickly so it is not necessarily an expensive mistake to leave this until you have found a property. On the other hand, exchange rate movements can be quite dramatic in relatively short periods of time so it is certainly a good idea to discuss the exchange rate outlook with a specialist when you first decide to buy and start fixing your budget. If it looks like the Euro is on a strengthening trend (getting more expensive) it may make sense to buy your Euros many months before you buy.
If you place the right bet on exchange rate movements you can save yourself thousands of pounds – or increase your budget significantly. On the other hand, nobody knows for sure what will happen to exchange rates in the future, not even the specialist brokers, so there will be no guarantees that you will make the right decision. Nevertheless, you should look into this issue, select a foreign currency broker and open a trading account at this stage rather than in a rush later.
Most people need a mortgage to help finance the purchase of their property but even those people who can afford to buy without a mortgage may benefit from taking one out. The question of how to evaluate and arrange a mortgage for Spanish property is dealt with in-depth in the chapter on financial matters. The point to be made here is that mortgages arrangements need to be made in advance of finding a property so that you are in a position to move with speed but without haste when you find a property you want to buy.
People who are forced to apply for a mortgage in a hurry will not have time to shop around and find the best mortgage conditions. This makes them more likely to end up with an expensive and inflexible mortgage, which can add thousands of Euros to the cost of your property over the lifetime of the mortgage. So do your research and shop around whilst you still have time, with a view to choosing a mortgage broker or lender and arranging the basic conditions of the mortgage by the time you have found the property you want to buy. Doing this also puts you in a much stronger position when buying from a developer whose mortgage you have the option of taking over. Having researched mortgages in advance you will be much better placed to evaluate the developer’s mortgage before deciding whether or not to take it.
All foreigners who are resident or own property in Spain (or for some other reason pay taxes in Spain) have to get a Spanish NIE number from the Spanish government. NIE stands for número de Identidad de Extranjero, which translates as foreigner identity number.
Though it used to be possible to buy a property and pay the associated taxes on the basis of your passport number it is now almost impossible to do this. Therefore it is very likely that you will need to have requested and received an NIE number by the time you purchase a property in Spain.
Getting an NIE number can take anything from 2 to 6 weeks, depending upon where you apply and how quickly the Spanish authorities deal with your application. The point to take on board here is that you need to have looked into the question of NIE numbers and made suitable arrangements to get one in good time.
You can apply for an NIE number in person in Spain, or authorise someone to get it for you if you don’t have time, or can’t bear the thought of spending your time dealing with the Spanish bureaucracy.
You are certain to need an account with a local bank branch in Spain in order to make many of the usual payments that are part and parcel of owning property in Spain.
It is highly likely that you will also need an account in Spain in order to buy a property. This is because many private vendors will only accept a bank-guaranteed cheque drawn from an account in Spain. Developers selling new properties are also starting to insist on payments being made from a local bank account as recent laws on money-laundering make accepting payments from other countries more complicated. Therefore you would be well advised to open an account in Spain in good time before you buy a property.
If you use a mortgage in Spain to finance your purchase it often makes sense to open an account with the bank that lends you the mortgage. In this case, your choice of the bank will be determined by the mortgage conditions you are offered. However, if you do not take out a mortgage with a local bank you will need to do some research on the retail banking conditions being offered by different banks.
Retail banking services and charges vary significantly and it is important to look into these issues before you open an account and buy a property. One has to pay particular attention to the fees that different banks charge for receiving transfers from abroad and for issuing bank-guaranteed cheques, both of which can add thousands of Euros to the cost of your purchase if you are not careful. To avoid a nasty shock you need to negotiate these fees in advance with the branch where you open your account.
Morgan and Morgan is well versed with all prior arrangements when buying a property in Mallorca and therefore happy to guide you through this process.
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Morgan & Morgan is trading name of Morgan & Morgan Mallorca Ltd.
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