What effect will Brexit have on expats getting a mortgage

  • Spain is one of the favourite destinations for British people when choosing where to buy a second home. The price of housing compared with the United Kingdom, the weather conditions and the quality of life on offer in Spain are all characteristics that make many Britons decide to enter our real estate market and buy a home here.

    Like many other citizens, the vast majority of British buyers also choose to get a mortgage in Spain, and so far there has been no problem, but what will happen to mortgages once the UK exit from the EU takes hold?

    To answer this question, we will analyse the situation.

    1. As of 31st October 2019 – the latest agreed date for Brexit – will there be any modification of the terms of mortgages of British citizens who have already been granted one by a Spanish bank and are in force?

    The answer to this first question is clear and will not suffer modifications: evidently not. No Spanish bank wants to nor should nor can modify certain conditions already established before a Notary retroactively.

    2. Will British citizens still be able to access mortgages from Spanish banks to buy a home in Spain?

    Firstly, it is necessary to clarify that a foreign citizen of any nationality in Spain can request a mortgage for non-residents, so in theory, a citizen of the United Kingdom, once outside the EU, should not have any problem to request and be granted with one of these mortgages.

    In addition, we must consider, as we said before, that the British are the main foreign citizens who purchase housing in Spain, so it would not make sense for the Spanish not to facilitate the granting of mortgages for this purpose.

    But in what cases could a foreign citizen not acquire a mortgage in Spain?

    Only those citizens coming from a country that is on the watch list of the Bank of Spain cannot get a mortgage, that is, those in which a proper study on viability and money laundering cannot be carried out, and the United Kingdom is not found on this list, even after the referendum.

    Therefore, the answer to this second question is also clear and that is that British citizens may continue to access mortgages from Spanish banks for the purchase of homes in Spain.

    3. Can Brexit affect the ease of concession and risk assessment by Spanish banks or will it toughen the conditions of the mortgages?

    Where Brexit can change things is in the assessment of risks and flexibility on the part of Spanish banks when granting a mortgage to a British citizen, because, among the different circumstances that could occur, we can highlight the following:

    a) The exit of the United Kingdom could mean a change in the legislation that currently allows European banks to pursue debtors in their country of origin in case of mortgage default.

    At this time, when dealing with EU resident citizens, in case of non-payment, Spanish banks can issue a court order from Spain to the United Kingdom and enforce their rights in the country of residence of the debtors.

    However, once Brexit comes into effect, as the legislation that will be applied in this regard is not yet known, this will force banks to consider the same risk assessment as for non-EU foreign citizens.

    b) Assessments of the economic situation of the British mortgage applicants.

    On the other hand, as we mentioned before, we find that it is not yet clear what the economic situation of the United Kingdom will be after leaving the EU, which is why Spanish banks will have to take this situation into account and assess it as a risk more when granting a mortgage.

    Although at first after the 2016 referendum, the pound sterling fell immediately and was well below the Euro, then the situation became stabilised, so a clear assessment cannot be made yet. In addition, we must bear in mind that the exit from the EU will not take place for another few weeks, with a subsequent period that the British Government has called an "implementation period" that will last until December 30, 2020, with the United Kingdom still in negotiations.

    On the other hand, there have already been experts who have predicted that unemployment will increase in the short term, and that it is possible that the United Kingdom can return to its previous situation of recession, or that growth stagnates.

    All the foregoing, together with the volatility that the value of the Pound has suffered since the results of the 2016 referendum were announced, has caused Spanish banks to increase their risk assessment procedures and may impose greater requirements when granting a mortgage loan to British citizens.

    Despite this situation of uncertainty, British citizens have not lost interest in investing in the Spanish real estate market, and continue to be, as we have seen, the foreigners who buy the most housing in Spain.

    In fact, after the referendum in 2016, the purchase of homes in Spain by the British suffered a fall. In the second half of 2016 it fell by 23.6% and continued in the first half of 2017, with another fall of 16.1%. But in the second half of 2017 the real estate interests of the British in Spain recovered. Until now where it is extremely quiet.

    Keep in mind that, in terms of the many attractions of buying a home in Spain, it is maintained that, despite the changes in the value of the pound, the overall liquidity of British buyers has not changed, and that, for them, the price of housing in Spain is quite low compared to that of other countries, including in the UK.

    All this shows that there is an important potential market and some Spanish banks have already stated that due to the potential turnover of these operations, they will not change their policies when granting mortgages to these citizens, so that despite the uncertainty caused by the lack of agreements between the British Government and the EU, no great variations are expected in the Spanish mortgage market.

    Source: idealista