Real Estate Financing in Mallorca: Insider Tips from an Expert

Good day, Mr. Fernandez. Thank you for taking the time to elucidate the topic of real estate financing and provide us with important tips. What makes you an expert in this field?

I have many years of experience, both nationally and internationally, in leading financial institutions such as Kutxabank, Caixabank-Global Payment, and BNP Paribas-Santander. I specialize in mortgage financing, real estate asset management, new payment method technologies, and alternative investments. At Engel & Völkers Finance Spain, we offer our clients a comprehensive range of mortgage and credit solutions through our national and international partner banks. Our goal is to develop tailor-made financial solutions to meet our clients’ needs. Right from the start, they receive professional advice, forming the foundation for their individual financing plan.

First Steps in Real Estate Financing

Speaking of getting started: If one decides to purchase property in Mallorca, what are the first steps?

I would say, that whether you already have your dream property in mind or are still getting an overview, contact real estate professionals who know the local market. This way, you can be sure to find the right property in the best location to suit your purposes and desires. Reach out to one of our 19 shops on the island or simply contact us through our website. Our financing advisors assist with the entire financing process, which includes identifying the best mortgage solutions for the purchase, preparing and managing all necessary documents for the risk analysis by our partner banks, property valuation service by our partner valuation companies, and support at the notary…

Can international clients also start right away, or are there specific preparations required to finance property in Mallorca?

For international clients, the first thing they need to do is apply for the N.I.E.. Without this document, one cannot conduct economic transactions in Spain. This is needed for actions like opening a bank account, buying, selling, renting, or inheriting property, and much more. Don’t worry: an N.I.E. number does not mean you have to change your tax residence.

The requirements for real estate financing in Mallorca are:

• Determination of the loan-to-value ratio, which is the percentage of the loan amount in relation to the appraised value of the property. This indicates the financing risk and is crucial for the bank to determine for example the interest rate.

• Valuation of the property

• Assessment of the borrower’s payment ability (debt ratio), considering their debts or other loans in their home country.

Financing Conditions in Spain

What are the conditions for financing in Spain?

It is common for Spanish banks to finance a maximum of 70% of the property’s purchase value, and the debt-to-income ratio should not exceed 30-35% (i.e., the client’s total debts should not surpass this percentage of their net monthly income).

Regarding the maximum financing percentage, at Engel & Völkers Finance Spain we offer exclusive solutions such as short-term loans, where we can finance 100% of the purchase price of a property or 100% of the offer price of a new development project.

You previously mentioned some required documents needed from the client. Can you provide us with a checklist of what to expect?

Certainly, here is a checklist of the required documents:

• Brief introduction (e.g., resume/profession/activity)

• Copy of ID & N.I.E. and contact details (tax domicile, email, and phone number)

• Copy of the last 3 years’ income tax returns (tax returns and proof of income streams, e.g., dividends)

• If dealing with other banks, account statements for the last 6 months showing main accounts and consolidations (investments/savings, etc.)

• If applicable, information about any businesses/companies they operate: corporate tax returns for the last 3 years

• Information about assets: e.g., properties owned abroad and possibly in Spain

• Credit reports (Experian or Schufa) and details of other loans/mortgages (purpose and maturity date)

International Buyers in Mallorca

The real estate market in Mallorca is well-established and continues to be resilient and robust – as we know from our latest Market Insights Mallorca report. Who are your clients in Mallorca? Can essentially “anyone” find a suitable property and financing?

At Engel & Völkers Finance Spain, we develop customized packages and look for the financial solution that best fits each client’s expectations and projects. From the most classic financing based on a fixed, mixed, or variable loan to very specific proposals for high net-worth individuals who wish to acquire unique residential properties. We have long-term agreements with institutions specializing in wealth management and private banking, both nationally and internationally, enabling us to propose exclusive solutions that meet the needs of this more demanding clientele.

International buyers make up 33% of the market in Mallorca. International clients with high purchasing power are the first to be interested in financing their purchases. In the premium segment, although more cash transactions occur than in the middle-income segment, people wish to maintain their investments without decapitalizing themselves or facing the tax implications of liquidating these investments. Moreover, options for financing at a fixed rate of under 3% make applying for a mortgage or other financing alternatives for purchasing a home in the premium segment very attractive. Therefore, we have developed an exclusive service with experienced, multilingual financial advisors who accompany them throughout the process.

Overview of the Financing Process

Could you briefly outline the mentioned process for us?

• Search for the best financing solution through bank offers

• Valuation of the potential property by a valuation company certified by the Bank of Spain

• Collection and submission of documents that allow the bank’s risk department to approve the financing operation

• After approval, the client must sign the binding offer, the European Standardized Information Sheet (FEIN), which is registered on the Spanish notarial platform

• After the required 10 calendar days as per the Spanish Mortgage Law 5/2019, the purchase contract and mortgage are signed at the notary

This all sounds very straightforward: are there no risks involved in real estate financing in Mallorca?

Basically, the entire purchase process and mortgage financing procedures are well-regulated by law in Spain. Therefore, there are no legal risks or procedures not covered by the Spanish Mortgage Law. Of course, if you plan to invest in a development project that will not be completed until 2027, something could happen during the construction process, and the project might not be finished. But if you work with the right companies and professionals, there is no risk even in that case. A general potential risk, which applies to all EU countries and not just Spain or Mallorca, is the rise in interest rates and property market prices.

Thank you very much for your assessment and the valuable tips and explanations on the topic of real estate financing in Mallorca, Mr. Fernandez!