Brexit implications for people who either own a property or want to buy a home in Spain

UK and EU negotiators have until the end of October to agree on a deal, something which has proved more challenging than many had anticipated since the UK voted to leave the European Union on 24 June 2016.

So, what implications will there be for British people willing to buy property in Spain, and for those who already own a home there?

In this article, we look at different aspects of being a British property buyer in Spain as a non-EU citizen.

Whether a deal is agreed or not, British property buyers in Spain should not be concerned. Under Spanish property law, all foreign buyers have the same rights, so in this respect any changes following a Brexit deal or no deal will not affect British buyers in Spain. Buying taxes and council tax (IBI) will remain unchanged as will the rights of property ownership, stamp duty and VAT (IVA).

Overall, foreign buyers represented 13,2% of the market in Spain in the first quarter of 2022, compared to 10,8% during 2021.

It is unlikely that British visitors will need a visa to enter Spain. If that becomes the case, it is expected that any visa application would be subject to a visa waiver programme similar to what is offered to US and Canadian citizens (known as the ESTA programme). Non-EU visitors to Spain currently are allowed to stay for up to 90 days within 6 months without the need for a visa. If you wish to stay for a longer period of time, then you will probably have to apply for a residence visa. Spain is keen to continue to attract British property buyers and tourists – some 17 million Brits visit the country every year and around 800,000 own a property here.

Since the UK announced its decision to leave the EU, there has been a slight drop in the number of British buyers. In the first quarter of 2020 1.56% of buyers were British, compared to 2.83% in the first quarter of 2016, according to the Spanish Property Registrar. But again, the impact of the current pandemic is greater - Spain’s Institute of Statistics (INE) reports that sales across the whole of Spain were down y 41% when comparing Q2 2020 to Q1 2020.

The Pound will continue to remain sensitive to Brexit developments over the next few months. Sterling has been weaker since the referendum (prior to 24 June 2016 it reached up to 1.32 against the Euro and at the time of writing it is around 1.12) and many expect it to fluctuate very little now that the UK has left the EU. Any changes will depend on a China-US trade deal, the outcome of the Brexit negotiations and a potential vaccine for Covid-19, all of which is currently unknown. Exchange rates are inevitably volatile and susceptible to changes in politics and uncertainty.

Since the referendum result in 2016, several lenders in Spain have already made changes to how they assess mortgage applicants from the UK.

“One of the main lenders has reduced the maximum borrowing from 70% to 60%, unless the applicants have excellent profiles”, explains Kevin Monger of Mortgage Direct which specializes in offering mortgages to foreign buyers. “They have also made it more difficult in general for UK applicants to satisfy their lending criteria in terms of the level of monthly debt they allow applicants to have compared to their net earnings. Several other lenders have applied currency risk measures, as they fear there could be a further depreciation in the value of Sterling against the Euro.”

Last summer also saw the introduction of a new mortgage law in Spain that allows anyone not earning in Euros to convert their mortgage to one in their home currency if that currency drops by more than 20% against the Euro. As a result, lenders are now far more cautious lending to those earning in Pounds, or any other currency that is not Euros. It is more difficult to get up to the 70% borrowing level and fixed rate mortgages have been withdrawn by many lenders.

“We feel that once Brexit negotiations are concluded and there is more clarity on the path ahead, lenders may start to loosen lending criteria a bit more for UK clients. Spanish lenders continue to offer very attractive interest rates to foreign buyers and buyers from the UK are a significant and important group amongst buyers in general,” concludes Mr Monger.

Currently, EU citizens pay 19% on any rental income for second homes in Spain. Once the transition period ends, British property owners are expected to pay the slightly higher tax of 24%, as is the case for all non-EU citizens living outside Spain and who own property here. They are also not able to deduct expenses from their tax bill, which has been the subject of much debate.

If you are starting the residency process from scratch, the foreign residency card is now called a Tarjeta de Identidad de Extranjero (TIE) and to convert this from the green residency card (or document) is fairly straightforward. It is simply a case of completing an application form and requesting an appointment at the relevant Oficina de Extranjeros (immigration office) in the province where you live. You will need to take your passport, a photo and possibly a Certificado de Empadronamiento (showing you are registered at your local town hall) if your address has changed.

Non-EU property buyers are also eligible for the Golden Visa, applicable for buyers who invest in €500,000 or more in property or land in Spain. As a Golden Visa resident, you will have rights to travel throughout the Schengen Area, and to work and live in Spain and you do not need to live in Spain or pay tax here. To renew the Golden Visa, you do need to visit Spain once a year, however.