At this point I want to interject to highlight a piece of advice that I have heard many times over the years and that I consider not only to be foolish, but dangerous. Some suggest that it is wise to take out a small mortgage on a Spanish property regardless of whether you need the finance.

They say that the bank’s legal checks can take the place of a lawyer’s checks, or that they add a layer of protection to the purchase as the bank will carry out checks that a lawyer would not.

They argue that the bank will check the legality of the property as they have a vested interest; the bank wants to ensure that its funds are secured against a valid asset. The significance of that last sentence is completely ignored. 

 “The bank wants to ensure that its funds are secured against a valid asset.” 

Beyond affordability, the bank has no interest in the borrower. I’ll use an example to explain why this approach provides no protection to the buyer at all.

I once dealt with the buyer of a property who wanted to secure a small mortgage of around 15% of the asking price of the property they were purchasing. They had legitimate reasons for asking for the mortgage that were not related to the legal checks.

The particular property that they were buying had an issue. At some point it had been extended. The extension had almost doubled the constructed area of the property, but it had not been registered at the land registry. There were some pretty complicated legal reasons for this and they had been explained clearly to the buyer by an independent lawyer.

The buyer made an informed decision to continue with the purchase. When the bank valued the property they could not give a value for the unregistered extension and based the value solely on the original, registered, constructed area. The valuation was still well over half of the asking price and so more than sufficient to provide the funds that had been requested. Realistically the building could vanish into thin air and the land it stood on alone would be sufficient to cover the mortgaged capital.

When the bank approved the Mortgage they made no mention of the constructed area or the valuation figure to the buyer, they simply said that the mortgage had been approved. Of course this information was clearly available in the valuation report, however the report was written in Spanish and the buyer did not speak Spanish. In this case the buyer was fully aware of the situation via their own lawyer and agent, however had they been relying purely on the bank to run legal checks on the property, and then had failed to ask the correct questions of them, they could have ended up only becoming aware of the issue when they came to sign the deed at the notary, and only then if whoever translated the deed did so accurately and they were paying full attention in stressful and unfamiliar circumstances.

In short, the idea that taking out a small mortgage will offer the buyer some sort of protection is not only misguided, it creates a false sense of security and unnecessary expense. If anyone makes such a suggestion to you it should be treated as a red flag. They are either innocently ill-equipped to give advice or there is something more sinister going on.