Investing with the equity of your house in a property in Spain

Imagine: you have surplus value on your home in the UK. You can of course wait with investing in other real estate until you have sold your house, but did you know that you can also invest with equity now?

One way to do this is to use this equity to finance your dream home in Spain. This way you invest your money in real estate, and you can rent out this house or use it as a holiday home. In this article we tell you how this works.

What exactly is surplus value?

First of all, it is important to look at what exactly equity is. Equity on a house can be calculated by deducting the mortgage amount you have from the appraisal value of your home.

An example: your house has an appraised value of € 250,000, and you still have a mortgage of € 70,000. This means that the equity of your house is € 180,000. If you have already paid off more mortgage, this means that the equity on your house will also increase.

The equity of your home can be for several reasons. For example, it may be the case that the market value of your home has increased due to the rise in house prices in general, but also because, for example, you have renovated your home since you purchased it.

When the amount is negative, it means that your house is 'under water'. This means that your home is worth less than the mortgage amount that you still have outstanding.

Using the equity

You may expect that the amount of this equity cannot be used immediately, and that you will have access to this money when you decide to sell your current home. However, you can already use this amount to finance your home in Spain.

For example, you may not want to leave the UK permanently, but would rather buy a (holiday) home in Spain as an investment. In that case, the equity also comes in handy when taking out an extra mortgage or increasing the existing mortgage.

In some cases, it is also possible to take out a loan with the equity as collateral. In these cases, the interest is often lower than with a standard loan.

Anyway, the equity will come in handy if you would like to buy an (extra) home in Spain. Leaving the money in the bank often makes it worth less. This is in contrast to the purchase of real estate in Spain: the value of this only increases! Buying real estate in Spain is therefore certainly a good way to invest with the equity of your home.

Differences in maximum financing through a mortgage

What is the main difference between raising a mortgage in your home country (based on equity) and taking out a mortgage with a Spanish bank, you might think?

Something to keep in mind if you want to buy a property in Spain with financing through a Spanish mortgage, is that you will have to finance a large part of the property yourself.

The Spanish banks in many cases assume that you will invest 30% of the purchase value yourself at the start, and therefore only provide a mortgage of about 70%. The buyer costs of about 13% are also added to this. All in all, you therefore need about 40-45% of the purchase value in own resources.

If you opt for financing through equity on the home in your home country, this may mean that little or no savings are required.

If there is sufficient equity, you can obtain a considerable amount by increasing or refinancing the mortgage in your home country. You may even be able to purchase a more expensive home than through financing through a Spanish bank. An example:

Refinancing in home country:

Purchase price Spanish home:         200,000 Euro

Additional costs 13%:                        26,000 Euro

Total cost of purchase:                     226,000 Euro

Appraisal value home country:        500,000 Euro

Home mortgage :                            280,000 Euro

Equity to be refinanced*:                 220,000 Euro -/-

Costs increase mortgage**:                 5,000 Euro -/-

Total required own resources             11,000 Euro

* with sufficient income.

**There will be costs for refinancing / increasing your mortgage – this is an estimate of these costs

Taking out a mortgage through Spanish bank:

Purchase price Spanish home:           200,000 Euro

Additional costs 13%:                           26,000 Euro

Total cost of purchase:                        226,000 Euro

Max finance: 70%x200,000 Euro =      140,000 Euro -/-

Total required own resources:               86,000 Euro

So you can see that investing with equity requires only a small or even no amount of your savings. If there is sufficient income, you can of course still get a mortgage from a Spanish bank for the home to be purchased in Spain – so you may be able to buy a much larger home than you initially thought.

So, contrary to what many people think, it is certainly possible to buy a property in Spain without selling your current home.

Our advice

First of all, we would like to recommend that you obtain good advice before purchasing your property in Spain. It is important to know where you stand financially and what the options are. Your financial advisor can help you with this.

If you also want to finance part of the purchase via a mortgage with a Spanish bank, it can be difficult to obtain the information if you do not yet speak Spanish.

We therefore recommend that you work with a team that can help you with this. That way we can also help you with this. We are happy to list your finances together with you, so that you know where you stand if you want to invest with equity.

Do you need help?

Either way, investing with equity of your current home can be a complicated process, especially abroad. It is therefore important that you are properly guided in this step.

However, it is a very good step, because how wonderful would it be if you could stay in Spain permanently or temporarily? Perhaps it is a dream of yours to emigrate to Spain, so that you can enjoy the Spanish sun every day. But also if you decide to purchase a property in Spain as an investment, we can of course help you.

We at Rayos de Sol are happy to help you. We are experts in housing on both the Costa Blanca and the Costa Cálida, the best area to live in Spain. We know how the Spanish housing market works and how we can best help you use the equity to buy a new or additional home in Spain.

In addition, we speak Spanish, so you can be sure that there can be no miscommunication due to the language barrier. Please contact us so we can assist you. We'd love to talk to you!