Expenses and Mortgages

Expenses & Mortgages in the Canary Islands

...what expenses are involved in the sale?

Normally, on the day of signing a provision of funds is set aside (a certain quantity to cover the expenses of the transaction) at the agency in charge of the transaction so that the successive payments of the notary, taxes and registry can be paid. If the buyer has taken out a mortgage then it is usually the bank that retains the provision of funds and who in turn hand it over to the agency with which the bank habitually works. This task can also be performed by the notary's office or by the interested party.

Once the transaction has been finalized and after approximately 2 months, the agency will return to the buyer; the authorized copy of the deed, a copy of the mortgage (normally the original document is held by the bank until the conclusion of the mortgage) and all the paid invoices after which the agency will refund the difference or charge the buyer in the case that the fund was not enough and the expenses were more than expected.

The various taxes and legal and administrative costs usually add up to around 10% of the sale price. These costs are paid by the buyer (on top of the sale price) and break down roughly as follows:

Taxes

...what are the taxes for a property in the Canary Islands?

New property:

• 5 % IGIC (Impuesto General Indirecto Canario - Sales Tax).
• 0,75 % AJD (Impuestos de Actos Jurídicos Documentados - Stamp Duty).
• Notary Fees.
• Land Registry Fees (Registro).
• Translation Fees (obligatory for non-Spanish speakers).
• Mortgage opening commissions and fees (if applicable)
  Lawyers Fees.
  

Second- hand property:

• 6,5 % ITP Impuestos de Transmisiones Patrimoniales ITP.
• Notary Fees.
• Land Registry Fees (Registro).
• Translation Fees (obligatory for non-Spanish speakers).
• Mortgage opening commissions and fees (if applicable)
  Lawyers Fees.
  

Notary

...what are the fees of notary?

The notary receives payment according to his/her tariffs (a stipulated tariff) for the authorisation of the deed. The buyer is charged for the expedition of copies of the deed (tariffs stipulated by law). The buyer would only have to pay the entirety of the fees if it is agreed with the seller beforehand.

Public Registry

...what are the fees of Registry?

The registry is paid accordingly, calculated in line with the prescribed tariff which is available to every user in each Registry and if it is also agreed the corresponding amount for the mortgage.

Administration Agency (Gestoría)

...what are the expenses of the agency?

The agency is paid for the services rendered. After the transaction, they will have to give the original deed of sale to the buyer, the simple copy of the mortgage (the original copy, is held by the bank), and the charges of notary, registry and paperwork, as well as the payment of the taxes.

Mortgage

...what taxes are there when applying for a mortgage?

If we need to apply for a mortgage for the acquisition of the property, in addition to the expenses of notary, registry and general paperwork other charges should be mentioned. These other charges include the on tax of "Legal Transaction Document" and others tied to the financial institution involved:

1. "Legal Transaction Document Tax" (AJD): There are two types:

• If the acquired property is NON VPO: In this case when the details of the mortgage have been finalised this tax (AJD), which is 1% of the mortgage, is deposited in the bank at the time of signing the title deed).
• If the acquired property is a VPO: In this case the mortgage is free of the payment of this tax, as is the later registry cancellation, which is also free of the payment of the tax.

* Habitual/First property: If the Property is to be the habitual residence then it is included in the deed the AJD tax is reduced to 0.1% of the mortgage.

Valuation

...what repercussions does this have on the amount of the mortgage?

Normally for the approval of the mortgage, the financial institution will demand a valuation of the property to be purchased with the aim of determining the maximum amount allowed for the mortgage and the conditions. Normally the bank grants the amount of the loan on the basis of the valuation (from an 80% of the valuation to a 100% in some cases, on the condition that the buyer produces other guarantees, guarantors, etc.) while this amount does not exceed the price of the house.

The amount will depend normally on the valuation which can cost between 180-400€.

Mortgage protection

...what other expenses are derived from the formalization of the loan?

An opening commission for the mortgage is usually arranged by the bank, which is normally a percentage on the amount to be lent.

Home Insurance: By virtue of law 2/1981 the holder of a mortgage is obligated to contract a fire insurance (or damages), on the property. It is an insurance that covers the building, not the contents of the house. These can be covered by extending the insurance policy.

It is recommendable, although it is not obligatory, to contract insurance which partially or fully pays off the mortgage in case of death of its holder.

Plusvalía

...who has to pay the plusvalía?

Very often the seller tries to convince you that you have to pay the Plusvalia tax that applies to the difference between the value of land since the last purchase and sale today. In fact it is the seller who is responsible to pay it to the according City Council by law.

Black Money

...is it wise to pay some money on the side?

It is commonplace (although highly illegal) for the seller to ask for a percentage of the sale price to be paid undeclared and in cash. While the seller may try to convince you that you are saving money by doing this (the taxes being a percentage of the declared sale price), you should remember that this practice will more than likely disappear within the next few years and that when you go to sell your property, you will be liable for Capital Gains tax on the difference between the amount declared at the time of purchase and the sale price. This practise is disappearing fast, since the Spanish Authorities have introduced new legislation designed to place more responsibility on the Banks and Legal Professionals involved.