Tenerife has long been a favourite holiday destination of North Europeans looking to escape their colder climates. In turn, their once or twice yearly flights to the sun have inspired many to consider owning a second home in Tenerife.
Over the years thousands have bought their very own dream property within which they enjoy the relaxed expat lifestyle that Tenerife has to offer.
Many more have bought apartments, town houses or villas as holiday retreats, for letting to hoilday makers or simply as an investment. Despite the recent economic downturn the property market in Tenerife and the rest of the Canary Islands is still healthy. .
Traditionally, cash buyers flocked to the island looking for a bargain, later, off-plan emerged as the preferred methods of property purchase. Nowadays, the expat property market in Tenerife is dominated by resales and a healthy resale market it is. Even in view of the recent economic downturn, properties are still frequently changing hands at prices well in excess of 300,000 Euros.
Many have found investing in Tenerife to be profitable due to the year round rental market and most buyers now look to borrow by way of a Spanish Mortgage to partially fund their purchase.
Unfortunately, there is very little in the way of regulation when it comes to Tenerife mortgages and the stories of bad advice and unhelpful banks are endless. The real problems arose when estate agents here realised they could earn an extra commission by introducing their buyers to the local banks. But, given that there are over 30 mortgage lenders and more than 100 mortgage products available in Spain, it was rare that an agent would ever introduce a client to the RIGHT bank.
Approach any estate agent in Tenerife today and they will tell you they most definitely can arrange your mortgage and there is no reason to use a broker. But the fact remains, there is no incentive whatsoever for an estate agent to find the best mortgage for your needs. They merely need to obtain any mortgage at any price to ensure you can purchase a property from them and they can earn their commission. They will usually have one bank which they take all their clients to and a secondary bank should the first one turn you down and that’s about it.
Utilising the services of a professional Mortgage Broker in Tenerife ensures you receive impartial advice. Given that bad mortgage advice can mean you pay double what you should be paying, it is well worth speaking to an independent third party and avoiding the conflict of interest and the problems that arise when an estate agent attempts to arrange your mortgage for you.
Some things to look out for when it comes to estate agents and mortgages in Tenerife:
- Exaggerated purchase costs, adding an extra one or two thousand Euros to the legal fees is an easy way for an estate agent to line their own pockets at your expense.
- “In-House” lawyers, if you are going to pay for the services of a lawyer, hire an independent third party – do not use the services of the estate agent’s own lawyer.
- Extended term mortgages, banks are keen to push your mortgage term as long as possible as the interest on a longer term increase exponentially. Don’t take a mortgage for more years than you need to.
- Interest only – This can be extremely useful in many situations but again, if you do not need interest-only, do not take it. It costs you money!
- Compulsory Life insurance, a common practice is for a bank to insist upon life insurance. Usually it is far less expensive to source your insurance independently. The worst practice we have seen involved the bank rolling up the entire costs of the insurance over a 35 year term and adding it to the client’s mortgage upfront. This meant the client paying interest on the total amount for 35 years – for no reason – a blatant rip-off!
- Changing the mortgage terms on the day of signing. We find this absolutely disgusting but it happens. Client arrives at the notary to purchase their new house and finds out the bank have increased the interest rate or reduced the term or added life insurance. The estate agent tells the clients they had better just accept it or risk losing their money.
In addition to purchase mortgages, there are now many banks who offer equity release mortgages, remortgages and Lifetime Loans in Tenerife and throughout the Canary Islands and Spain.
Remortgages in Spain were traditionally very costly but recent changes to legislation mean it is now possible to transfer (or subrogate) your mortgage to another lender offering better terms or simply to increase the length of your mortgage in order to lower the monthly payments.
Equity Release mortgages have grown in popularity as prices over the last 10 years have increased spectacularly. Many property owners have taken advantage of this and used the equity in their homes to buy further properties, make home improvements etc.
Lifetime mortgages or Lifetime Loans are relatively new here and offer those over the age of 60 to release equity in their properties without having to pay it back during their lifetime. So, no monthly repayments and a “no negative equity” guarantee. These products require qualified financial advice and again, we would recommend you use the experience and knowledge of a professional broker before committing to such a scheme to ensure it is the correct type of product for you.
Many thanks to Andy Ward of Tenerife Mortgage Broker for this sound advice on obtaining the best mortgage when buying property in Tenerife.