Advice on choosing the title holder (owner) of a dwelling

The choice of the title holder or holders of a dwelling - that is, the persons who will sign the private contract of sale and mortgage loan - is an important decision that the parties involved in the purchase should consider carefully.

If the property is being acquired by a single person there's no problem, but if there are to be two or more owners it becomes necessary to take into account the legal system under which they come before signing the contract.

Generally speaking, the title to the property should be embodied in the private contract of sale and in the deed of sale, as well as in the loan application and in the public mortgage deed.

In this way, it will also show in the Land Register once all the formalities have been completed.

If, at the end of the day, several individuals are the title holders, it's necessary to set out to what extent each one is so.

For example, the title holders can acquire the dwelling as a jointly-owned property or as one owned by indivisible half-shares.

Now then, why is it important to bear this ownership in mind? Let's see how being the title holder of a dwelling has an influence in different situations.

a. Modification of ownership. Once the contract has been signed, changing the title holders of a dwelling may entail a high financial cost, because it will require a series of administrative formalities and will mean that the contract will have to be placed on public record again.

b. Deduction on the basis of investing in one's usual home. The title-holders of the dwelling will be able to claim a deduction on the basis of investing in their usual home on their Income Tax returns.

c. Separation or divorce. The ownership of the dwelling will be decisive in realizing the assets held under the marital property system.

d. Financial help for publicly assisted housing. Ownership is key to checking the fulfilment of the necessary requirements for receiving the available financial help for buyers of publicly assisted housing.

In brief, it's advisable to refer the matter to a solicitor or expert and to consider the most suitable ownership with him or her.

Ways of coping with the rise of the Euribor

The Euribor, the interest rate most commonly used to calculate mortgage payments in Spain, rose to 5.361% in June, 0.113 points above its previous all-time high.

This figure, which has yet to be confirmed by the Banco de España, means that mortgages that are adjusted annually, or every six months, will become more expensive.

Monthly mortgage payments on a typical 141,422 euros, 25-year mortgage which has an interest rate of 0.50% above the Euribor, and which is adjusted in June, will rise by 72 euros.

In light of the above, consumers will welcome any way of coping with rising interest rates. These measures include:

. Fixed interest rate. This type of rate, which is not very common in Spain, guarantees that monthly mortgage payments remain stable. This is an attractive option when there is a trend for higher interest rates, but not if this trend is forecast to continue for only one or two years.

The fixed rate mortgages currently offered by banks and savings banks stand at 6.5%.

. Mortgage extension. This is another way to ensure that mortgage payments do not rise substantially.

This option does not involve any additional costs provided that it complies with the bank's requirements.

In fact, 350 Spanish households have extended their mortgage term at no extra cost.

. Changing mortgage. As a result of changes which came into force a few months ago, consumers are now free to change their mortgage provider.

The Spanish government also reduced the costs of this operation, and established a maximum commission of 0.5% of the capital to be repaid, or to be assumed. Mortgage holders are free to look for more attractive mortgage loans offered by other financial entities.

. Get advice. Mortgage holders are advised to assess their financial situat ion before deciding on any of the options discussed above, in order to decide which option is to their best advantage.

Professional Mortgage Services in Murcia

Financial and accounting services

Tax payents are obligatory, and are also and expense that companies and property owners sometimes fail to take into consideration.

Your expert Accountants in Spain will tell you what your tax liabilitiesare, how much you must pay and when the payments are due.

Obligations of property owners within a residents' community

Residents' communities are legally defined by two texts; the Spanish Horizontal Property Act of 1960, reformed in 2003; and Article 396 of the Spanish Civil Code; as well as the Articles of Association drafted by the members of the community itself.

In accordance with the content of this legislation, the obligations of property owners can be summarised into the following points:

1. Obligations regarding conservation of the general installations

According to Article 9 of the Spanish Horizontal Property Act, property owners must respect the general installations of the community and all other communal elements, whether for private or public use and whether included or not in their property.

2. Participation quota

According to Article 9 of the Spanish Horizontal Property Act, property owners must contribute to the general expenses for the appropriate upkeep of the building, its services, charges and liabilities that are not subject to individual application.

3. Reserve fund

The reserve fund is a sum of money taken from the contributions made by all the property owners and which is set aside for extraordinary costs, maintenance work or repair to the property.

4. Communication obligations

Locating a resident to inform them that they are in arrears with their payments or to inform them of when the next residents' meeting will take place does not normally create serious problems in these residents' associations because their primary home is usually the property within the community.

5. Change of ownership

In the event that the property owner decides to change the ownership of the property, this must also be communicated to the secretary of the community.

If this is not done, the original owner shall continue to be liable for the corresponding economic obligations.

Steps being taken in Spain and the United Kingdom to return liquidity to banking

British banks and the Spanish Government are analysing the feasibility of certain emergency measures to provide liquidity to financial entities and to jump-start the capital markets.

In Spain, one of the initiatives on the table consists in requesting that the Central European Bank grants a greater term for financial operations with the purpose being to provide more stability to financial entities.

Another of the measures being discussed involves the Spanish Government and the Public Authorities being able to guarantee certain securitisations.

Specifically, this proposal has materialised in the form of the 3,000 million securitised VPO debts (subsidised housing) that have already been guaranteed by the ICO (Official Credit Institute of Spain).

In the United Kingdom, during the months of May, June and July, the Bank of England will exchange up to 50,000 million Sterling in securit ies in securities backed by mortgage debt by public debt, in other words, Treasury bonds.

With this action, the Central Bank of the United Kingdom intends to improve the liquidity situation of the banking system and raise confidence in the financial markets.

Authorised entities will have six months to exchange the assets for mortgage loans during an initial period of one year that may be extended to three.

Those interested in doing so, will also be required to pay a commission resulting from the difference between the three-month Libor rate and the official price of money at three months.

Costs Involved in the Purchase of a New Property: V.A.T.

VAT (Value Added Tax – “IVA” in Spanish) covers the entire construction process of a property, from the moment it is contract to the moment it is completed. The land, the construction works, its completion and the first delivery made by the developer are all subject to this tax.

Therefore, this tax is only applicable when a newly-constructed property is purchased from a developer. Subsequent sales of the property are exempt from this tax but are subject to another type of taxation, Property Transfer Tax (“Impuesto de Transmisiones Patrimoniales” in Spanish).

In Spain, VAT currently stands at 7% for freehold property, garages and annexes. The 7% is only applied to garages and annexes (basements, attics, storerooms) that are located in the same building as the property in question provided that they are purchased at the same time, on the same date and before the same notary. It should be mentioned that the number of garage spaces that can be subject to the 7% rate of VAT is limited to two.

For this reason, it is fundamental that the transfer of the garage and the annexes is done during the same act and on the same date. It does not matter whether this transfer is reflected in the same or a different private document or public deed.

The VAT is paid to the developer at the same time as the price of the sale.

Converting the document into a public deed

After the conditions of the sales agreement have been agreed upon it will be converted into a public deed by being executed before a notary.

The deeds will be registered at the Land Registry after all the expenses and taxes due have been paid. Only legal and administrative documents, not private contracts, may be registered at the Land Registry and this is why it is essential to convert the agreement into a public deed before a notary.

The deeds list all the points to be considered in the purchase of a property: location; specifications, boundaries; surface area; price; method of payment and all the pertinent contractual conditions.

The purchaser will keep the original deeds after all the expenses have been paid and the document has been registered at the Registry.

Contents of the agreement

The wording of the sales agreement should adhere to the principle of good faith and the rights and obligations of both parties should be fairly and reasonably shared. It is extremely important to read all the articles of the agreement carefully before signing to verify that that you agree with all the conditions.

The National Consumers Institute and the Autonomous Communities, working in collaboration, have drawn up a standard sales agreement for a newly-built property. In line with this model, sales agreements should contain the following:

- Parties involved: name and National Identity Document number of the purchaser of the property; name and National Identity Document number or tax number of the seller.

- Information about the plot or property: name, square metres, location, Land Register information, information contained in the annexes.

- Architect details: name, address, contact details, statement affirming that all the permits and administrative licenses required by law have been obtained.

- Builder details.

- Information on the mortgage loan: Statement affirming that the purchaser has taken out a mortgage from a bank.

The bank’s loan conditions should be attached.

- Date of delivery of the property: conditions on which said delivery is dependent.

- Total price of the plot broken down according to type of building and the annexes.

- Method of payment: The down payments and deadlines should be specified. The interest rate for late payment in the event of non-payment should be specified.

- Guarantee information: The name of the institution that is providing the guarantee should appear.

- Specify whether there is an option to assume the loan mortgage.

- Annex to the sales agreement listing the documentation that should be handed over to the purchaser: plot information, financing, building, licenses etc.

- General Conditions of the Agreement which describe the obligations of the parties.

All these points should be worded in adherence to the principles of good faith and fairness. Article 10 of Royal Decree 515/89 refers to all real estate sales contracts and leases:

“Real estate sales contracts and leases should be drawn up in a clear and concise way. Other texts or documents may be referred to provided that the parties have been given a copy of the text or document before signing the contract, or on executing the contract. They should also adhere to the principles of good faith and a fair distribution of the considerations accepted by both parties. Consequently the inclusion of clauses is not allowed ….”

The sales agreement for a newly-built residential property

What is a sales agreement?

A sales agreement is a private document in which one of the contracting parties, in this case the seller, undertakes to hand over a residential property while the purchaser undertakes to pay a specified price for said property.

The agreement is completely valid and is legally binding on both parties from the moment of signing, even though the property has not been handed over. The agreement will eventually be converted into a public deed before a notary.

Steps for extending mortgage terms for free

In Spain, it will be possible to extend the amortisation term of a mortgage for free thanks to an agreement reached by the Spanish Ministry of the Economy and Justice, a measure which is included in the Government's emergency plan to stimulate the economy.

The initiative is aimed at private individuals who have taken out a mortgage loan for the construction, refurbishment or purchase of a primary home issued by a credit entity, in other words, banks, savings banks, credit cooperatives and financial credit establishments.

The modification is, in actual fact, a renewal. In other words, it is a change to the original terms and conditions of the mortgage loan that the client agreed with the entity, more specifically, the terms and conditions regarding the amortisation period.

The client will be able to extend this period at no additional cost and with no nota ry fees, register charges nor Tax on Documented Legal Acts.

The measure will remain in force for a period of 2 years.

That said, extending a mortgage implies other factors that must be taken into consideration. By reducing the monthly repayments, one will be paying back the loan over more years, with more interest included.

Furthermore, if the financial situation of the client improves in the future and they decide to cancel the loan early, this must also cover the costs incurred by the new operation.

Steps for extending a mortgage

Before beginning the process to extend a loan, the Spanish Ministry for the Economy recommends prudence and advises that you speak with the financial entity in question and reach an agreement with them.

If the client finally chooses to opt into this initiative, the following steps must be taken. This information has also been included in a guide published by the Spanish Ministry for the Economy to explain the proposal.

The steps are:

1. Study the current situation of the mortgage loan with your financial entity.

2. Reach a mutual agreement.

3. Amend the term of the mortgage in a Notarised Deed.

4. Record the amendment with the Properties Register as a note in the margin.

The Property Valuation

The valuation is a report or valuation certificate, drafted by a professional, that contains, in a justified manner, the value of a property based on certain predefined parameters.Its extreme importance in the house buying process lies in the fact that it is key for requesting the mortgage loan.

The maximum amount of any possible mortgage will be limited by the value calculated in the report and it is how the banks guarantee that the amount of money they lend is not superior to the value of the property.Article 7 of Spanish Law 2/1981, dated March 25, regarding the Regulation of the Mortgage Market, establishes that for a mortgage credit to be mobilised via the issue of the deeds regulated by said Law, the goods subject to mortgage must have been valued by the valuation services of the credit entities or by other valuation services that fulfil established regulatory requirements.

However, requesting one of these reports is not limited to these situations. Any property owner can request a valuation, for example, if they are planning to sell a property they own and they want to know by how much the value of said property has changed since they purchased it.