Your Guide to Mortgages for Property in Ibiza, Spain

The Spanish island of Ibiza is a location with seemingly everything, from bouncing nightlife and luxury clubs to beautiful beaches, hilltop villas, and more. Ibiza is a great place for investors and people looking for a secondary home as the property market is booming and interest rates are lower than average.

Without question, Ibiza is an excellent place to invest and one of the most lucrative in Spain, given 84% of the island’s GDP comes from tourism. However, it’s crucial for investors to get the most favourable mortgage terms on a Spanish property.

Opportunities in the Ibiza Property Market

Ibiza property prices have surged in recent years. On average, the price per square metre in most regions of Ibiza has doubled over the last 15 years, as displayed in the chart below.

Source: LetUs Ibiza

Additionally, the allure of low interest rates has captivated many. As shown by the graph below, the fixed interest rate hovered between 2-3% from the start of 2022 to the end of 2023 – compared to interest rates of 2-5% in the UK market during the same time period.

Source: LetUs Ibiza

Many also consider Ibiza a “safe” investment. In contrast to Spain’s significant drop in home sales by 64% during past crises, Ibiza only saw a 35% reduction before bouncing back within two years.

Another benefit is that the island is a tourist hotspot. In 2023 alone, Ibiza and Formentera received over 3.3 million visitors, so property investors could recuperate their investment by renting it out to tourists.

Challenges for Foreign Property Buyers in Ibiza

Despite the positives outlined above, securing a mortgage for overseas property can be complicated. Here are some challenges you might face:

• Bureaucracy And Legal Matters: Foreign investors often struggle to obtain a Número de Identidad de Extranjero (NIE number), which is required for foreigners to purchase a property in Spain. Other common legal challenges include understanding Spanish property laws, knowing your tax responsibilities and finalising the deal with a notary.
• Taxes: Different taxes, such as the property transfer tax, income tax on money from renting out a property, Spanish wealth tax, and inheritance tax laws, can make it difficult to understand the legality of owning a property in Ibiza.
• Language Barrier: Navigating the mortgage process in a non-native language can add an extra layer of complexity.
• Currency Exchange: Changes in the value of the pound compared to the Euro can affect your investment.

Mortgage Types, Terms, Interest, and Closing Costs

Investors looking to purchase a property in Ibiza first need to keep in mind a few factors around Spanish mortgages. These include:

Mortgage Rates: In general, properties in Spain are covered by “Annuity Mortgages,” which are fixed-rate mortgages. Regulated mortgages, which means you’re purchasing property for personal use, will generally be financed for 60-65% of the property value. However, with unregulated mortgages, it’s unlikely that a bank will finance more than 50%. Though most mortgages in Spain are fixed, flexible rates are possible. These rates follow the “Euribor Rate,” which is quite typical for mortgages in the Eurozone.

Borrower Age: The age of the investor is also a crucial factor. Spanish banks provide maximum terms based on lenders having a “final age” of 75. In other words, a borrower who’s 60 years old will only be able to secure a 15-year mortgage.

Closing costs: Closing costs are pretty similar to those you’ll find in the UK, hovering around the 3.5% mark of the property value.

Secure Your Ibiza Property With Hectocorn

The Ibiza property market looks very fruitful in 2024 and beyond. But securing a mortgage for foreign property, especially in a vibrant market like Ibiza, requires a solid plan and expert guidance. You must work with a broker that has expert insight into the local property market and provides access to niche lenders that offer the most favourable mortgage terms.

Hectocorn has extensive experience assisting ultra-high-net-worth individuals secure favourable overseas mortgages. Our team of mortgage brokers is dedicated to understanding your financial circumstances and long-term goals to secure the best possible overseas mortgage agreement. Our debt management services are designed to help you obtain the best terms, ensuring your experience is stress and hassle-free.

Discover how we can assist with your mortgage for foreign property, contact us at [email protected].