Home loans in the Canary Islands for non-residents: myth or reality?

mortgages in the Canary Islands for non-residents

Buying a house in the Canary Islands

The dream of buying a house in the Canary Islands tickles the fantasies of many people, spread all over the world.

We have already seen, in a previous article, as almost 30% of real estate sales in the Canary Islands are by foreigners.

Although I do not have statistics capable of quantifying this aspect, I think it is reasonable to assume that a portion of these foreigners purchase a house with the benefit of a mortgage, whether they are residents or not.

But to better understand this phenomenon, let's start by taking a look at some numbers on the mortgage situation (mortgages, in Spain) to the Canary Islands.

  • The 81% of the trades take place with financing.
  • The average percentage financed is 58.6%.
  • The average amount financed is €114,000.
  • The average interest rate applied is 3.89%.
  • The average monthly payment is €613, which represents 33,98% of the average salary cost.

(Data published by Registradores de España updated to Q3 2023)

Now that we have a snapshot of the state of the art, let's move on to some more general considerations.

On what basis the loan is granted

Let's start by saying that every home loan is granted on the basis of two main aspects:

  1. The real market value of the property
  2. The borrower's ability to honor installment payments

We start from the assumption that the capital loaned by the bank is always guaranteed by the physical asset (the property) which, until the mortgage is repaid, will cover the entire residual debt with its value.

From a theoretical point of view, therefore, the bank would not even need further guarantees as, if the installments are not paid, it could get back its capital (and often also interest) simply by selling the same property.

In practice, however, bureaucratic complexities would make the process of recovering the capital long and expensive, which is why the bank always prefers to make sure that borrowers are actually able to regularly honor future payments.

To do this, therefore, verify that there is constant income, i.e. that those who contract the debt are really able to demonstrate the ability to generate a regular income.

And here I would like to dispel a myth that I hear repeated quite often, namely that "the bank lends money to those who already have it". This is not accurate, because in reality the bank "lends money to those who are able to generate it", which is a very different thing.

Many times I hear unemployed people who want to come and live here in the archipelago to make a new life ask me if it is possible to ask a bank for a loan to buy a house, perhaps without making a down payment as they have no savings.

Now I invite you to this reflection: but if you don't have a job and you don't have any savings, how do you think you can meet the mortgage payments? Here, this is also the reflection that the bank makes and is the main reason why many mortgage requests are rejected.

Having clarified this, on the contrary banks are happy to lend money to those who want to buy a property and have the ability to pay the installments and this is demonstrated by the data reported above (the 81% of sales take place with a mortgage, remember?).

And now the good news: even non-residents can do so if they wish to apply for a bank loan, provided they respect the conditions we have just analysed.

It is clear that the non-resident subject will have slightly different constraints and conditions from those who live and work here in the archipelago, starting from the interest rates which currently hover around 5%.

Conditions for granting the loan

As for the rest, here are some general conditions (each bank has its own policies) which favor the granting of a mortgage loan to a non-resident in the Canary Islands:

  • Purchase of the house as a second residence (therefore not as a property to be used for income, as a pure investment)
  • Financing not exceeding 70% of the value of the property
  • Mortgage installment not exceeding 30% of demonstrable monthly income (although in some cases this amount can rise up to 40%)
  • Age not exceeding 75 years at the end of the period (e.g. if I am 60 years old, I can request a mortgage for up to a maximum of 15 years)

Now some practical reflections.

The bank prefers borrowers who participate economically in the sale, possibly in a significant way: those who put a greater economic effort into the project appear (at least in the eyes of the bank) more reliable than those who would like almost total financing. The idea, therefore, of investing in a property in the Canary Islands with only a small sum at your disposal is, by definition, a losing one.

Many ask if it is possible to mortgage a property in Italy to guarantee the payment of the instalments: although it seems like a good idea in general terms, in the eyes of the bank it appears to be a terrible solution; in fact, in the event of insolvency on the part of the customer, going to recover the money in another State would, in all respects, be a real bureaucratic ordeal.

This is why the bank much prefers to rely on the borrower's real income, carrying out all the necessary checks (primarily the CRIF) to "certify" his solvency.

Another aspect to keep in mind is that there are banking institutions that allow you to take out a mortgage without necessarily having to have a current account in Spain. In these cases the installment is debited directly to the Italian current account, through the SEPA circuit. Bank checks for sales, however, are issued directly by the banking institution and delivered to the seller at the time of the deed.

In conclusion, therefore, obtaining a bank loan for the purchase of a house in the Canary Islands is not very different from doing so in Italy, even in "non-resident" conditions. Provided, of course, that the minimum requirements required for a similar operation carried out in Italy are respected.

If you still have any doubts, write it in the comments.

Article by Marco Sparicius Canary Islands Real Estate Consultant

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