When buying property in Tenerife, it is strongly recommended to organise your finances before proceeding, particularly if you require a mortgage. Spanish banks are notoriously slow in processing mortgage applications, by which time you may have already agreed to purchase a property and signed a contract with a deadline to complete. Alternatively, you may expect the bank to lend a certain percentage of the property value, but the bank’s typically conservative valuation company values the property closer to the ‘firesale repossession’ price rather than private open market sale price. This can leave a buyer with insufficient funds to meet the purchase price.
Many buyers also overlook the expenses of purchasing property in Tenerife. Where a mortgage is required, estimate on paying an additional 10% of the purchase price in taxes and fees, whereas for cash buyers, the figure is likely to be closer to 8% – 9%.
When buying a property, the main costs are:
Purchase Tax (Stamp Duty) – 6.5% of declared property price
Notary fees – Varies depending on the property – typically €500 – €1000
Land Registry Fees – Approximately 40% of the Notary’s fee
Bank mortgage fees – Typically a few hundred euros, but depends on the bank.
Lawyer’s costs – Typically €1,500 plus post completion fees.
Capital Gains Tax – Where applicable
When selling a property, the main costs are:
Plus Valia Tax – Varies according to the IBI Catastral value and time owning the property. Typically between €1,000 – €4,000.
Lawyer’s fees – Typically €1,300 – €1,500 plus tax.
Cancellation of Mortgage – Typically 1% of the original Mortgage advance
3% retention of sale price – Applicable where seller is non-tax resident in Tenerife. Retained by the buyer and paid directly to the tax office. It is essentially a deposit against the seller’s potential Capital Gains Tax liability (the taxman obviously doesn’t trust non-residents to file a timely CGT declaration!). If no CGT is ultimately payable, the seller can apply for a reimbursement.
The vast majority of purchasers in Tenerife don’t bother to obtain a survey when buying a property. There are various reasons for this, the main one being that the majority of properties are apartments on complexes, which benefit from structural damage insurance in any event.
However, for older properties, particularly detached villas or rustic fincas, a comprehensive structural survey can be worth its weight in gold. Historical building standards in Tenerife were notoriously shoddy. Contractors often skimped and cut corners on structural supports, electrical installations or plumbing. Sometimes legal paperwork was never even obtained for such installations, leaving the buyer with a potential time-bomb, particularly if/when they choose to carry out refurbishments. The typical cost of a private survey can be anywhere from €300 – 1,000 Euros depending on the type of the property and the complexity/detail of the survey required.
All Spanish banks offering a mortgage on a property purchase will automatically conduct a basic valuation survey via their preferred surveyor. Such report is perhaps equivalent to a Homebuyer’s Report in the UK. Buyers should note that in the current market, the surveyors generally protect their bank clients by valuing properties on the low end of the valuation scale. Given that banks typically use this valuation to calculate the amount they are willing to loan, buyers should be careful that they have sufficient funds to make up any shortfall between what they hoped the bank would lend, and what it will actually lend. Many unsuspecting buyers have signed a purchase contract and paid a hefty deposit to the seller only to discover before completion that the bank won’t lend them enough to buy the property, leaving them with a substantial shortfall that in many instances, they can’t raise from other sources.
In such instance, the buyer may have no choice but to default on the contract and forfeit their deposit to the seller. However, A good solicitor will anticipate this potential problem and will request a clause in the contract that makes the transaction conditional upon the buyer obtaining a sufficient mortgage offer, failing which the deposit will be refundable. This is yet another reason why instructing a good solicitor is essential when purchasing property.
TENERIFE SOLICITORS are Tenerife’s only registered English Solicitors & Spanish Abogados. The firm has almost 10 years experience in handling property conveyancing procedures and offers a highly professional, client focussed service at competitive rates.
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