Buying a new build off-plan in Spain: mortgage timing and risks

Buying off-plan has a peculiarity that throws almost everyone: you start paying long before the home exists, and the mortgage only arrives at the end. In between there are one or two years in which your money is out and the keys are not yet in your hand.

A good deal of new build is sold on the Costa Daurada and around Tarragona, where we are based, and the same rules apply anywhere in Spain. Three things decide whether the purchase goes well: when you apply for the mortgage, what protects your money in the meantime and whether the developer’s loan suits you.

The real payment schedule

That first 20% comes entirely from your pocket, with no lender involved. It is the point that stops most transactions, because many people assume the mortgage will cover them from the start. On a new home, VAT (generally 10% for residential property) is charged on each advance payment as you make it, so budget it alongside every instalment.

When to apply for the mortgage, and not before

The mortgage is not applied for when you sign with the developer. It is applied for once the handover date is known, about 3 or 4 months beforehand.

The reason is simple: mortgage offers expire, and the lender assesses your solvency with a snapshot of the moment. An approval obtained two years before handover is worth nothing on the day.

That has an uncomfortable consequence worth accepting from the outset: anything can happen between signing and getting the mortgage. A job change, a car loan or a rise in rates can alter the outcome. If you buy off-plan, look after your credit profile throughout the build: take on no other debt and keep your savings visible. Exactly what the lender looks at is in LTV and DTI in a Spanish mortgage.

Your money must be guaranteed. By law

This is the point most people do not know, and the one that prevents the most grief.

The amounts you pay on account must be guaranteed by an insurance policy taken out by the developer or a guarantee from a credit institution. This is set out in the first additional provision of Law 38/1999 on Building Regulation, as amended by Law 20/2015 with effect from 1 January 2016. The guarantee covers the amounts advanced, the applicable taxes and statutory interest, and it is required from the moment the developer obtains the building licence.

In practice:

• Ask for the individual insurance or guarantee certificate in your name for each amount you pay. The contract must name the insurer or guarantor and the account for payments.
• Always pay into the developer’s special account, never into a general account or in cash.
• If you are not given the guarantee, stop paying and take advice before going further.
• Note the deadline: a guarantee from a credit institution lapses if, two years after the developer’s default, you have not demanded termination and repayment.

This is not red tape: it is what separates your savings from the developer’s insolvency.

Take over the developer’s loan or arrange your own?

The developer takes out a mortgage to finance construction. At handover you can take on the proportional part of that loan (subrogation) or have it cancelled and arrange your own with the lender of your choice. Either way, the lender assesses you.

The saving in paperwork from taking over the developer’s loan is usually limited to the valuation (€300–600) and, if there is one, the arrangement fee. It sounds good, and sometimes it is.

But watch the arithmetic. That saving is one-off; the interest rate is paid for decades. On €200,000 over 30 years, half a point of difference adds roughly €18,000–20,000 in interest. The developer’s loan only wins when its conditions are already competitive. The honest answer is that you have to compare both, with numbers, rather than accept the one that comes ready-made.

Buying off-plan as a non-resident

The schedule is the same if you live abroad, but the final step needs more cash:

• A smaller loan at completion. Lenders typically finance 60–70% of the lower of price and valuation for a non-resident, against 80% for a resident. Worked example: on a €300,000 new home you pay €60,000 during the build. A resident borrowing 80% (€240,000) covers the rest of the price; a non-resident at 70% borrows €210,000 and brings another €30,000 at completion (€60,000 at 60%), plus taxes and costs. Estimate them with the property purchase costs calculator and test the loan with the Spanish mortgage calculator.
• Affordability in euros. Repayments should stay within about 30–35% of net income, converted from your currency. Over a build of one or two years, exchange-rate moves change both your staged payments and the completion balance.
• Paperwork from abroad. Foreign tax returns and payslips, translations, an NIE, a Spanish bank account and, if you will not attend the signing, a power of attorney. Start before the handover notice; our guide to the NIE and Spanish bank account explains the order.

Our non-resident mortgage service prepares that file for the lenders that finance non-residents.

Valuation and inspection at completion

The lender values the finished property; if the valuation comes in below the price, the difference comes from your savings. A valuation is not a building survey, so arrange snagging separately, and remember that completion delays do not automatically extend mortgage deadlines.

The most expensive mistake in off-plan purchases

Signing with the developer without first checking whether a lender will give you the mortgage. It is a purchase two years ahead with 20% already paid: if the mortgage is refused at the end, your position is very uncomfortable.

Before signing, do the exercise in reverse: look at your profile today, estimate how it will look at handover and find out which lenders finance that development. Preparing that file, presenting it to several lenders at once and comparing them against the developer’s loan is the work of a real-estate credit intermediary, a role regulated by Law 5/2019 and registered with the Bank of Spain (in our case, no. E760). We work for you, not for the lender, and we only charge if we get your mortgage.

Off-plan checklist

• I have the first 20% available without counting on a lender.
• I have the insurance or guarantee for every advance payment.
• I always pay into the developer’s special account.
• I will look after my credit profile throughout the build.
• I will compare the developer’s loan with at least two other offers.
• I will start the mortgage 3–4 months before handover, not earlier or later.
• If I live abroad, I have budgeted the extra cash a 60–70% loan requires.

Have you reserved a new build, or are you about to? Request an initial mortgage review with the price, payment schedule and expected handover date, and we will tell you whether the developer’s loan is a good one or whether you should look for your own.