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
23rd 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.
