What Brexit and other developments mean to Spanish property buyers

Over the past few months four major developments have become potentially game-changing issues for Brits who already own or are considering buying Spanish property. These are the related questions of Brexit, the Sterling-Euro exchange rate, Euribor (the base rate used by Spanish banks for calculating your mortgage) and some new rental laws.

Even if you are purchasing your Spanish property purely for your own personal pleasure, an outlay of this magnitude needs to be treated as an investment and as such, due consideration given to market conditions, affordability, ongoing costs, alternative investments, tax implications – the list goes on. Now add to this list the implications of the four issues mentioned in the opening paragraph. Let’s have a look at each one in turn.

Brexit

An exit of the UK from the EU is something only some Brits in the UK want – no one else in the EU wants the UK to leave, and no Brits living in the EU do either. Any Brit who has dealings with Europe, business or otherwise, will immediately understand that Brexit would mean grief – as yet undefined, but grief in some form or other.

The Spanish State welcomes foreign property buyers, and therefore is unlikely to discourage non-EU Brits by making their purchase more complicated or more expensive. It is far more likely that there will be a difference at the selling end, as the State would have the opportunity to collect some additional tax (at present regulated by law across the EU) unconcerned if the seller’s sensibilities are offended. In short, Brits will no longer get mate’s rates.

The British press has already reported this week that France may consider imposing an extra 10% Capital Gains tax on non-EU Brits selling their French properties, in line with those of other non-EU citizens in that country, and Spain will undoubtedly consider similar measures. The result would be a hefty reduction in any profit made on a property sale, and perhaps even a loss.

Exchange rate

The press has also reported how the falling pound is affecting tourists this year. £100 bought you €144 last summer, but buys you only €129 today – 10% less and falling. This is, of course, is closely related to the Brexit issue: Sterling started falling last November. But if tourists have a little less holiday spending money, house buyers are having to fork out an extra £5,000 on a €60,000 deposit – which would have been £41,400 last summer but is now £46,500. Ouch.

It is possible, of course, to guard against further devaluing of sterling during the lifetime of your mortgage is by borrowing from your UK bank, where rates may presently be a little higher than Euro rates, but the exchange rate question is eliminated from the equation.

European base rate

But all is not doom and gloom. For the first time ever we are experiencing a negative European base rate (Euribor), the interbank rate on which Spanish banks base their own lending rates. But before anyone gets excited by the prospect of the bank having to pay you interest for your mortgage, bear in mind that the differential will still mean you will be paying interest, albeit at some of the lowest rates in living memory.

Even in the event of Euribor dropping to a negative level lower than the differential (when, in theory the bank would have to discount interest payable from the capital payment), you might still not receive interest payments from the bank, as many mortgage contracts have a 0% floor written into them (although the legality of such a clause is presently being contested in the Spanish Supreme Court).

The point is that rates are low at the moment, which goes some way to compensating the additional costs described in the first two sections.

New rental laws

Andalusia has now followed Catalonia, Valencia and other regions and passed new holiday rental legislation which requires owners to register their property as a rental property and complying with a series of regulations (for example, heating and air-conditioning in every room). Failure to register or comply with the regulations carries hefty sanctions – up to €18,000 for “serious” and €150,000 for “very serious” failings.

And sanctions have already been imposed. In Barcelona the online rental company Airbnb was recently fined €30,000 for failure to register rental properties on their site, and property owners have been individually fined up to €3,000 for not registering (in some cases for tenants sub-letting without their knowledge).

While the new laws provide guests with guarantees and protection, they do change the way in which owners have approached holiday rentals: the costs of registration and compliance will not be insubstantial, and certain administrative procedure will have to be followed.

So, is it a good time to buy? With the benefit of hindsight, 2014/5 was the optimum time to buy (congratulations to all of you who bought then), but even now it’s cheap to borrow, house prices are still a good chunk lower than they were 5 or 6 years ago and banks are lending again. Both house prices and numbers of transactions are now on the rise, so it’s probably advisable to dive in sooner rather than later, but do the maths very carefully if you’re buying to let. Until 23^rd June the Brexit question is the big unknown, but although administrative requirements and taxes would be more onerous, even an exit would not spell the end of Britons’ dreams of owning a holiday home in Spain.