Spanish mortgages: Banks are relatively free to set the charges and terms they offer

THERE is no reason to be frightened in approaching a lender to finance the home of your dreams in sunny Spain. 

Mortgages in Spain, just like in the UK, are offered by banks and savings banks and sold either directly by the lenders or through mortgage brokers. As an added comfort (if you need it) several international banks, like Barclays and Lloyds TSB, offer mortgages in Spain. 

However, there are a few words of caution because just like any other developed mortgage market there are big differences in the costs of the Spanish mortgages on offer. Some are downright inflexible and expensive, but there are good products out there too.

The main difference between the average UK and Spanish mortgage is the transparency in costs. In the UK, fees are set in stone and as an added safeguard the bank or building society and the mortgage conveyancer are duty bound to explain to the client exactly what the mortgage product is going to cost.

In Spain, however, banks are relatively free to set the charges and terms they offer. This translates into significant differences in costs and conditions. Not only do Spanish mortgages vary from bank to bank, they also vary within the same bank, from branch to branch. All rather confusing.

In a nutshell there are a lot of good products out there, but there are bad mortgages too. It is up to the client to shop around and ensure they get the best deal available. You need to ask yourself about variable and fixed rate mortgages and setting a fixed rate with a monthly payment, knowing you can afford it, is seen as the more cautious approach. Most mortgages sold in Spain, however, are variable rate mortgages, meaning mortgage repayments vary according to the base rate set by the European central bank. 

Borrowers with variable rate Spanish mortgages cannot be certain what their mortgage payments will be in the future. If the interest rate falls they will pay less, but if it rises will pay more.