Mortgage for spanish property

Why a Mortgage is the best option

Whether you purchase a property in cash or think about different finance options, it is not always an easy decision. If you have the funds to buy the house it does not always make sense to tie up your capital, and many clients today consider a mortgage for spanish property instead, for many reasons.

Following are just some of the reasons why people consider financing the best option when buying a property in Spain today: The interest rates are at a historic low and the 12-month Euribor remains in negative figures. Interest rates are extremely competitive in comparison to previous years and are expected to remain low for the foreseeable future, making financing even more attractive.

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An unrivalled euribor rate

The interest rates are at a historic low and the 12-month Euribor remains in negative figures. Interest rates are extremely competitive in comparison to previous years and are expected to remain low for the foreseeable future, making financing even more attractive.

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It makes sense to maintain liquidity and not tie up your money in one asset, investing your funds in other areas that generate higher returns. Financing can also allow you to purchase a more substantial dream home or leave you with enough funds to make capital improvements to your new home.

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Tax liability

There are tax implications when buying a property in Mallorca or buying property in Spain. Taxes are more than double the European average, with no economic justification! In high- end properties, it is extremely important to consider the substantial wealth tax and inheritance tax implications. The reduced tax obligation may be a seriously important advantage when considering finance support for the purchase.

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Access to funds

Unlike in other countries, in Spain it is very difficult to release equity from the property at a later stage, another reason to ensure a mortgage is in place at the time of purchase. For this reason, you should balance out your options from the very beginning. That being said, if you do find yourself in these circumstances, our team may be able to help you.

Types of Mortgages in Spain

In general terms the maximum mortgage available is up to 70% loan-to-value for non-residents and up to 80% loan-to value for Spanish tax residents. The lower of the two values between the purchase price and valuation will be the base.  This percentage can vary depending on different factors. In Spain, the maximum affordability ratio or debt-to-income is between 25% and 40%, this includes all existing debt. There are exceptional circumstances where a higher percentage can be obtained or a higher affordability ratio can be considered.

Each client and application is unique as all applicants have different circumstances and priorities, and we must take into account age, nationality, tax residence and other factors to see which are the best options at all times for each client. From personal mortgages for own investment and use to property development mortgages, the Lionsgate Capital team will help you at each and every stage of the process.

It is important to ensure the property can be mortgaged and legal advice is highly recommended (we can recommend various top law firms if required).

For each type of mortgage in Spain the rates and conditions vary between banks and also change on a regular basis. Due to the volume of transactions and our relationship with the banks and their management teams, the Lionsgate Capital team ensure they obtain the very best interest rates on your behalf, at all times.

Fixed rate vs variable rate

With variable rate mortgages in Spain, the interest rate is typically lower than that of fixed rate mortgage products. However, without warning, interest rates could increase or decrease subject to the Euribor or base rate applied.

Understanding the risk involved with variable rate is essential. Variable rate appeal to some people because the rate is calculated on a base rate (Euribor or other) and is typically lower than the fixed rate. In Spain, variable rates are generally fixed over a 12-month period and reviewed every 12 months subject to the base rate, however, there are banks we work with outside of Spain that offer other alternatives.

With a fixed rate mortgage in Spain you are able to accurately budget as the payments do not change. Although the interest rate will be slightly higher, you know what your interest rate and payment will be for a fixed length of time or for the full term of the mortgage.

Regardless of which you choose, in Spain the type of mortgage and type of interest rate generally do not change throughout the term of the mortgage so it is very important the correct decision is made right from the beginning.


Different Types of Mortgages in Spain

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Spanish resident mortgages

If you are a Spanish tax resident you have different products available and opt for a higher loan to value, of up to 80% or even 90% loan to value in some cases, depending on the valuation.

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Equity release mortgages

Equity release is not common in Spain but can be obtained for certain purposes on properties that are mortgage-free, please contact our team and we will study your individual case.

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Non tax domiciled client mortgages

If you work on yachts or do not have to declare tax on your income, we can help you find the best mortgage from over 20 lenders, with a maximum finance of up to 70% of the purchase price (or the valuation if lower).

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Lombard loans

We offer Lombard loans to our Private Banking clients, where an investment portfolio either in Spain or abroad is used as collateral to borrow funds in Spain and maximize their return on investment. Lombard loans can also be used in addition to a mortgage to maximise taxation and return on investment.

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Interest only mortgages

Interest-only mortgages are currently not available in Spain, with the exception of construction mortgages where the first 18 to 24 months can be interest only, until the property is finished. We do have some international banks we collaborate with that offer interest only options to private banking clients that hold a minimum investment of 500.000,- to 1Mio EUR with them.

If you wish to lower your monthly payment to the minimum, we always recommend you apply for the longest term possible, as some banks do offer longer terms than others.

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New-build mortgages

If you are looking to finance the build of your own home, we can also help you obtain the best option. You must have the funds to purchase the plot, together with the project and licenses in place, the architect´s plans and quotes for the build for the application process to be carried out.

In general terms, can be 60% to 70% of the total cost of the project. Different taxes and costs apply when building a home, which your lawyer or tax advisor can confirm.

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It is not common practice to remortgage in Spain. We can however review your current conditions and see if it is worth setting up a new mortgage and canceling the existing one, taking into account all costs, including the penalties for redeeming the existing one and the set-up costs for the new mortgage.

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Commercial mortgages

Whether you need financial support for a hotel, a property development or any other business, commercial mortgages vary depending on the purpose and the project. In general terms the mortgages available vary between 50% and 60% of the purchase price or valuation (the lower of the two), please contact us and our team will study your case and see which options suits best each purpose.

Financing a property development or a refurbishment with a mortgage

Financing the development of a property or a refurbishment is slightly different to a standard mortgage for a spanish property. Hence we recommend strongly to first seek advice from a financing expert company such as Lionsgate Capital prior to you starting your project. As we work with all the banks in Spain, we will be able to source and arrange the best deal for:

  • A development of a new build
  • Construction or refurbishment of a holiday home
  • Construction of a permanent home in Spain (especially Mallorca, Ibiza or Menorca)
  • Refurbishment projects of a property
  • Equity release on an existing property to develop or refurbish another

Our team can source finance for a percentage of the entire costs of your building project (including purchase price of the plot and construction costs). We will negotiate the best conditions for you with the banks.

We look forward to offering you financing options for your new build or development, please contact us for a free consultation.

Please note: The information the banks provide us with changes frequently and we aim to update the information accordingly. If you have any queries at all, please contact our team, thank you.

8 easy steps to the perfect spanish mortgage application

We understand how complicated the process can be. That's why our team takes care of every detail to ensure the process is easy and stress-free from the first contact to completion at the notary. We have put together a few guidelines to explain the process for a spanish mortgage application:

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Contact us

Contact us by email or by phone as soon as possible in order to see what the best option is for you as the types of mortgages available, terms, conditions and costs are different in Spain to those in other countries. It is important your timing is right as you will need to produce various documents to process your application and find out how much you can borrow.

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After an initial conversation with one of the Lionsgate team members to discuss exactly what you are looking for, what your personal circumstances are and what the best mortgage for you is, we will explain the terms, monthly payments, interest rates, fees, etc. and will send you an spanish mortgage application form and a list of supporting documents required to move forwards.

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Our team will study your application and documents and pre-under-write your mortgage, your affordability ratio will be calculated and a basic property check will ensure the property can be mortgaged. The maximum affordability ratio or debt-to-income is between 25% and 40% in Spain, this includes all existing debt and the new loan you are applying for. A summary will be prepared by the Lionsgate team to send to the 5 to 6 top banks that currently best match your profile and preferences to see if the mortgage is viable and which are the best conditions that can be obtained.

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Once the team receives the feedback from the banks, your complete application will be presented to the 2 to 3 banks that offer the best overall conditions. The banks will carry out a risk assessment, and confirm the approval of the mortgage subject to the property valuation. Terms and conditions always depend on each clients personal circumstances and also vary from bank to bank, however, our team always strives to obtain the very best finance solution for each and every Lionsgate client.

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After you have accepted an offer, a certified surveyor must visit and value the property and as long as the valuation is correct with no warnings or conditioning clauses, the bank will be able to issue the formal offer and proceed to open a bank account for you. In Spain, the mortgage and the bank account must always be with the same bank. If a client prefers an official valuation to be carried out before the process starts, our team can also arrange it.

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For the purchase, you will need to have a Spanish identification number (NIE), which your lawyer can arrange. This takes some time and we recommend you to begin this process as soon as you decide to purchase a property. The NIE can also be obtained in the Spanish embassy in your country of residence. We always recommend our clients to have a lawyer throughout the process and if necessary, we can recommend excellent lawyers to suit each clients preferences and requirements.

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Ready for completion

Once everything is in place and after confirming the details with the bank and lawyer, your Lionsgate consultant will send you the final breakdown of costs, listing the various fees and taxes related to your purchase which in general ad up to between 10% and 14% of the overall purchase price. At this point, you will also know the exact amount you will need to transfer for the remainder of your purchase.

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The new mortgage law determines that the client meets the notary between 10 and 1 days before completion to check all mortgage conditions. On the day of completion, the mortgage must be available together with sufficient funds for the remainder of the purchase including the costs. Completion takes place and is witnessed by a notary and two deeds will be signed, the mortgage deed and the purchase deed. A Lionsgate team member  will be with you throughout the entire process until the very end!

The duration of the process for an spanish mortgage application varies between banks and clients. In general terms we recommend a minimum of 6 to 8 weeks allowance, but there are always exceptions that can be made. Please contact our team for further advice and to help guide you through the process on how to apply and obtain the very best mortgage for your Spanish property purchase.

Documents required for a Spanish mortgage application

Following is a list of the documents required for Spanish mortgage application. We have a check-list of documents for each nationality and tax-residence and also for other types of mortgage applications such as self-builds, developments and transactions in company names that we will email you after our initial conversation and based on your personal circumstances.

It is important all documents are provided in English, Spanish, German or French where possible. Following are the main documents we require for individuals looking to mortgage:

Wealth Tax in Spain, &Inheritance Tax

When you buy a property in Spain, it is important to make sure you are informed in advance of all the wealth taxes in Spain. Many people are caught out by laws they are not necessarily aware of and this can result in more tax being paid. Professional guidance will prove invaluable.

In order to make sure you are fully informed, following is some information that may be of interest to you:


Wealth Tax in Spain (Patrimonio)

Most foreigners moving to Spain or buying a property here, understand that they will have to pay Spanish taxes such as income tax, capital gains tax and inheritance tax. Not everyone, however, is aware that non-residents buying in Spain must also pay wealth tax in Spain, rather than in their country of residence.

Spanish Wealth Tax is payable by both residents and non-residents (if they own property in Spain), although the rules are different. Residents pay wealth tax on their worldwide assets but have quite generous tax-free allowances, whereas non-residents are only liable for their net assets within Spain but miss out on some of the allowances that tax residents benefit from.

Wealth Tax in Spain – Deductions

Wealth Tax in Spain – Deductions

Non-residents are entitled to an individual deduction of €700,000 per person. So, for example, a non-resident married couple buying a property in Mallorca, Ibiza, Menorca (or in another region of Spain) will have a combined tax-free allowance of €1,400,000 on their total net estate.

The wealth tax in Spain  is calculated on net assets, which means you can deduct the mortgage too, therefore considerably reducing the tax paid each year.

Spanish Wealth Tax Rates

Spanish Wealth Tax Rates

The current wealth tax rates are applicable to each persons individual net wealth, the higher the price of the property, the more you are taxed, with a cap set at 3,45% per year for properties in excess of € 10,9 Mio! As stated above, the first €700,000 is the national tax-free allowance per person.

The current wealth tax rates are applicable to each person´s individual net wealth on 31st December of each year, after all relevant deductions are made are as follows:

From € To € Tax Rate % Tax Band € Cumulative Tax €
0 170.472 0.28% 477 477
170.472 340.937 0.41% 699 1.176
340.937 681.869 0.69% 2.352 3.529
681.869 1.336.739 1.24% 8.120 11.649
1.336.739 2.727.479 1.79% 24.894 36.543
2.727.479 5.454.958 2.35% 64.096 100.639
5.454.958 10.909.915 2.90% 158.194 258.833
10.909.915 Onwards 3.45%

Inheritance & Gift Tax in Spain

As with the wealth tax, inheritance tax is also applicable for non-residents and residents in Spain. Each autonomous area (region) sets its own rules concerning inheritance tax for non-residents, but unlike in many other countries, in Spain it is the recipient or beneficiary that pays the tax.

Due to there being many different rules in relation to inheritance and gift tax, we recommend each individual case is consulted with a tax advisor, our team can recommend good tax advisors if requested.

Many law firms advise non-resident clients to draw up a will before a notary solely for their assets in Spain as this considerably simplifies the inheritance process if and when the time arrives.

How taxes are reduced with a Mortgage for property investment Spain

The value of the property will be reduced by the mortgage in order to avoid tax payments but only if the mortgage is in place at the same time as the purchase! So, it makes sense to seek financial support at the very beginning, even if you have the funds to purchase the property.

In addition, it is difficult in Spain to release equity at a later stage, therefore it makes sense to seek for financial support at the time of purchase for various reasons:

  • Tax benefits (wealth tax and inheritance tax)
  • Low interest rates allow you to make more on your funds and maximize return on investment
  • Maintain liquidity for other purposes
  • Diversify your Spanish property investment options

We always recommend our clients to finance as much as possible upon completion in order to obtain all the benefits. A mortgage for spanish property is deductible when it is set up upon completion or during a short period of time after the purchase (a few months). In Spain it has to be linked to a Spanish property to be deductible for tax purposes. Banks are not as keen to set up a mortgage after the purchase, so it is always better to have it all prepared to sign at the time of purchase at the notary.

Property value used to calculate the wealth tax and inheritance tax

The property value taken into account for wealth tax purposes is the highest of the following three values:

  • The officially registered council tax (valor catastral)
  • The value taken into account for any other tax purposes (given by the Tax Office)
  • The price in the purchase agreement

The same values / rules apply for inheritance and gift tax purposes in Spain.

In properties of a higher value, not only are the savings linked to the wealth tax important, but clients must also take into consideration that with the low interest rates available today it makes much more sense to mortgage and obtain an important return on propery investment in Spain by investing the funds, with the possibility of easily cancelling the mortgage in years to come if the interest rates were to go up.

Let us know the purchase price and we will work out how much you can save!

Mortgage Costs Explained

Once the mortgage is approved the bank will provide us with an estimate of all Mortgage costs involved, which we will review and will include any additional costs related to the purchase. We will send you a detailed breakdown so you know the exact amount to transfer in preparation for completion. Please note as from June 2019 the banks cover most costs related to the mortgage.

In general terms, we recommend clients to estimate 10% to 14% of the purchase price for the costs, which include the following:

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Early Repayment Penalties

Although early repayment fees are not part of the initial costs, they are an important part of the negotiation as many of our clients prefer flexibility to repay the mortgage. Since June 2019, the new mortgage law states early repayment penalties must be 0,25% for the first 3 years or 0,15% for the first 5 years and 0% thereafter when there is a variable interest rate. With a fixed interest rate, the early repayment penalty is 2% for the first 10 years and 1,50% thereafter. Our aim is to always negotiate early repayment fees down to a bare minimum for all our clients.

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Administration Fee

The banks administrative department take care of registering the property and the mortgage and ensuring all fees and invoices are paid, including notary, registry and taxes. They eventually send you a copy of both deeds together with a copy of all the individual invoices, for this they charge between 400 euros and 600 euros for the purchase deed, depending on the bank.

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Depending on the bank, home insurance and/or life insurance may be compulsory when applying for a mortgage. Other products sometimes apply, we always negotiate the best conditions and minimum number of products for our clients.

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Opening / Arrangement Fee

When arranging a mortgage, it is common for the lender to charge an opening or arrangement fee for setting up the mortgage, usually between 1% and 2% of the mortgage amount, we always strive to negotiate this fee for our clients too.

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Lionsgate Capital Fee

We save our clients substantial funds, on average 10% or more throughout the term of the mortgage. We offer a free consultation and work on a success fee of 1% of the mortgage (minimum fee: EUR 4.500,-).  If we are not successful nothing is charged! You have everything to gain by contacting us as we will save you substantial time, effort and funds.

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Land Registry Fees

As well as paying the property taxes, you will have to pay to have the property registered in your name. This cost also depends on various factors but can be estimated between 0,10% and 0,30% of the purchase price. The bank will cover the costs of the mortgage.

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Notary Fees

This cost depends on various factors but the total cost is normally between 0,10% and 0,30% of the purchase price. This cost is for the purchase deeds, as the bank will cover the costs of the mortgage.

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Some banks charge to have the cheques issued. We always ensure this is the minimum amount and try to exempt this charge when possible.

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Surveys and Valuations

A survey or valuation is called "tasación" in Spain. It is not necessary to obtain a mortgage pre-approval to instruct a valuation, but once the application is pre-approved, a valuation of the property must be carried out and in most cases is paid for by the client. All valuations for mortgage purposes are regulated by the Bank of Spain and the surveyors must ensure the licenses for each property are in place and that the properties are legal and can be mortgaged. We highly recommend all clients have a lawyer to carry out their own revision so the clients are reassured. As always, we are happy to recommend good surveyors and lawyers if required.

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Taxes / Stamp Duty

In Spain, the amount of tax payable depends on the type of property and on the region where the property is located. For the purchase, this ranges between 6% and 11% for a pre-owned property (calculated on the taxable value of the property and the region).

For the purchase of a new property 10% VAT must be paid.

Additionally there is a stamp duty, which is between 1% and 1,50%.

Examples of the Mortgage Costs in a Property Purchase

Following are a few examples of the breakdown of costs. Since June 2019 clients must only pay for the costs related to the purchase as the banks cover the costs for the notary, registry, administration and taxes related to the mortgage. Please bear in mind these costs are an estimate and can change as per each of the above mentioned points:

Purchase Costs €675.000 €1.000.000 €1.500.000 €2.000.000 €4.000.000
Notary €1.600 €1.800 €2.200 €2.400 €3.000
Registry €1.100 €1.600 €1.900 €2.200 €3.300
Property Tax €57.500 €90.000 €145.000 €200.000 €420.000
Administrative Costs €600 €650 €750 €850 €900
Total Purchase Costs €60.800 €94.050 €149.850 €205.450 €427.200
Mortgage costs The only applicable costs are the property valuation and arrangement fee

Mortgages Frequently Asked Questions

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Lionsgate Capital is regulated by the Bank of Spain and is included in the Bank of Spain's register of real estate credits intermediaries with ID Number D270.

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