Having a substantial deposit, a successful UK business and plenty of equity in your home doesn’t automatically mean you’ll qualify for a Spanish mortgage.

I had a conversation with a prospective client recently that perfectly illustrates why arranging your mortgage should be one of the very first steps when considering buying a property in Spain — not something you leave until you’ve found your dream home.

The dream property in Spain

The clients had found a beautiful property on the Costa del Sol, priced at approximately €475,000. They had already paid a €6,000 reservation deposit and were preparing to commit to a much larger payment to secure the property, with completion anticipated the following year.

Like many buyers, they had been reassured that obtaining a mortgage in Spain shouldn’t be a problem. After all, they had a successful business in the UK, substantial equity in their existing home and only wanted to borrow around 50% of the Spanish property’s value.

Surely that should be straightforward? Unfortunately, not necessarily.

Spanish mortgages don’t work like UK mortgages

One of the biggest misconceptions among British buyers is that a large deposit or substantial assets will automatically make obtaining a mortgage easier. In Spain, lenders are particularly focused on your ability to demonstrate that you can comfortably afford the repayments from verified, sustainable income.

Although many Spanish banks don’t offer mortgages to non-residents, those that do will typically lend up to 70% of the property value, subject to their lending criteria and valuation. We are fortunate to work with a lender that can consider up to 75% in suitable circumstances.

But there’s another important consideration.

A 70% mortgage doesn’t mean you only need 30% of the purchase price in cash.

In addition to your deposit, you should generally budget another 10–14% of the purchase price for taxes, legal costs and other purchase-related expenses, depending on the property and circumstances. On a €475,000 purchase, that can represent a substantial additional sum.

The problem with UK limited company directors

This is an area where British buyers can experience particular difficulties. Spanish lenders don’t always assess income in the same way as UK mortgage lenders, especially where applicants are limited company directors who receive a relatively small salary supplemented by dividends. For UK tax planning purposes, this can be a perfectly normal arrangement. However, Spanish banks tend to take a much more cautious approach to dividend income.

In practice, lenders commonly recognise only around 50–80% of dividend income when calculating affordability, depending on the lender and the circumstances. This means that someone who believes they have sufficient income to support a mortgage may discover that the Spanish lender is using a considerably lower figure. Lenders also want to see a clear, consistent and properly documented income history. Irregular dividend drawings, outstanding tax liabilities, incomplete accounts or significant recent borrowing can all create difficulties.

How Spanish mortgage affordability works

As a general guide, Spanish lenders commonly want your total monthly credit commitments, including the proposed Spanish mortgage, to remain within approximately 35% of your verified net monthly income.

For example:

Even with €10,000 net income per month, this applicant would have no remaining mortgage affordability under that calculation. And remember, if you’re a company director, the lender may not recognise all your dividend income in the first place.

Borrowing against your UK home to fund your Spanish deposit

Another common mistake is assuming that releasing equity from your UK home is the simplest way to fund a Spanish property purchase. Spanish lenders generally expect you to demonstrate that your deposit comes from your own available funds, supported by a clear and acceptable source of funds. A recently arranged loan or second charge used to fund the deposit can create significant problems. It also introduces another monthly credit commitment, reducing the amount you may be able to borrow in Spain.

In the case I recently discussed, the clients had arranged substantial additional borrowing against their UK home at a high interest rate, partly to fund their Spanish purchase. Unfortunately, the new borrowing, together with existing mortgage and finance commitments, created considerable affordability challenges. They had also recently cleared significant credit card balances and had not yet finalised their latest company accounts. Although their UK home had substantial equity, that did not overcome the concerns a Spanish lender would have about affordability, deposit funds and financial stability.

Don’t assume you can release equity from your Spanish property later

In the UK, homeowners are accustomed to remortgaging to release equity for various purposes. Spain is very different.

You should not buy a Spanish property assuming that, once its value increases, you can simply remortgage it and send the money back to the UK to repay borrowing secured against your British home. Equity release for this purpose is not generally available through standard Spanish mortgage products. Consequently, you could find yourself paying a high interest rate on your UK borrowing for many years, without an easy way to repay it using the equity in your Spanish property.

Sometimes the best mortgage advice is to say, “Not yet”

Following our discussion, the prospective clients made the sensible decision to postpone their Spanish property purchase. Unfortunately, that may mean losing their initial reservation deposit. However, the alternative was potentially committing to a much larger non-refundable payment without having a mortgage approved. In this instance, my advice was to spend the next 6–12 months getting their financial affairs into a stronger position before revisiting the Spanish property market. That includes finalising their company accounts, ensuring their tax affairs are up to date, establishing a consistent and properly documented income pattern, reviewing expensive existing borrowing and building up a demonstrable deposit. Sometimes protecting a client from making a costly mistake is every bit as important as arranging the mortgage itself.

Planning to buy in Spain? Start preparing 6–12 months beforehand

If you’re self-employed or a UK limited company director, I would strongly recommend speaking to a mortgage adviser experienced in Spanish lending well before you start seriously looking for a property. That gives you time to establish what you can realistically borrow, review your financial commitments, organise your accounts and tax documentation, and ensure your deposit is acceptable to the lender. Most importantly, it means you can go property hunting with confidence, knowing what is realistically achievable.

How Locations Mortgage Solutions can help

At Locations Mortgage Solutions, we have extensive experience advising UK clients on their mortgage options, and we can also help with Spanish mortgage applications through our specialist lending relationships. We understand the challenges that British buyers face, particularly company directors, self-employed applicants and non-residents. Our aim isn’t simply to find you a mortgage. It’s to help you understand whether your plans are achievable and, where necessary, put together a strategy to get you mortgage-ready.

Before you pay a reservation deposit or sign a purchase contract in Spain, speak to us.

It could save you thousands of euros, considerable stress and a great deal of disappointment.

All mortgage applications are subject to individual lender criteria, affordability assessments, property valuation and approval. Lending limits and treatment of income and deposit funds vary according to individual circumstances.