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Buy to Let in Spain

Buy to let has become popular in Spain as well as in the UK. The principle of buy to let is that you buy a property with a mortgage and use the rent to pay the mortgage. Provided the value of the property you have bought increases, you make a profit. Buy to let is an example of a leveraged investment - whereby you can make a much higher percentage gain in your capital than an un-leveraged investment. You are also at risk of losing your capital quickly if the market turns against you.

Example 1 - Rising Market

Cost of property in 2007 = €200,000
Deposit = €40,000
Mortgage = €160,000

Sell Property in 2009 for €250,000
Before Tax Profit = €50,000

So, in 2 years, your €40,000 will have more than doubled (pre-tax)

Example 2 - Falling Market

Cost of property in 2007 = €200,000
Deposit = €40,000
Mortgage = €160,000

Sell Property in 2009 for €160,000
Before Tax Loss = €40,000

So, in 2 years, your €40,000 will have been lost.

Spanish property prices have increased by around 150 percent between 1998 and 2006. Whether such increases will be repeated in future is debatable. The average price of a property in Spain in 2006 was around seven times the average salary. Nevertheless the Spanish savings bank Funcas found in a 2006 survey that Spanish people expect house prices will continue to increase over the next 10 years. (In 2005 UK house prices had reached six times the average salary. Spain is thought to be more capable of supporting higher house price multiples than the UK because interest rates in Spain are significantly lower.)

If you buy to let in Spain, it's likely - unless you make special arrangements - that you'll receive rent in Euros. This gives you two good reasons to arrange a mortgage in Euros rather than Pounds Sterling.

European interest rates are historically lower than those in the UK.
Using rental income to repay your mortgage will not be affected by swings in the Sterling/Euro exchange rate.

Not all lenders are happy to advance mortgages for buy to let in Spain. Provided you will be the main occupant of the property, most lenders will be happy enough for you to rent out the property to family and friends.

You may struggle to find any mortgage product called "buy to let" for Spanish property. By shopping around, however, you will discover a variety of lenders who are willing to advance a mortgage on the basis that you will be renting out the property. These lenders will generally allow the rental income to be taken into account to increase the amount of mortgage they will advance to you.