When we buy a house, what expenses and taxes do we have to face?
Buying a home is a very important decision and it will surely be one of the biggest investments we will make throughout our lives.
A very important point to take into account is if we are going to consider the purchase with our own funds or if we need a mortgage loan to be able to carry out the purchase.
Mortgages are the most common means of financing the purchase of a home in Spain. No less than 80% of Spaniards resort to mortgages to buy their home.
There is quite a difference between buying a house with and without a mortgage and also if you are the seller or buyer, since both parties have to pay expenses for this operation.
Whether we are buyers or sellers, these are the main expenses that we must face when buying a house.
1. The appraisal of the house:
If at the time of buying your house you are going to ask for a mortgage, it is essential that an appraiser puts a value to the property so that the Bank grants you an amount in loan. It is a certificate that the banks request before granting a mortgage. With this certificate you will know the real value of the property to guarantee that the conditions of sale adjust to the reality of the property.
The price of the appraisal report, which must be issued by an entity certified by the Bank of Spain, varies depending on the size of the property. As a guideline it can oscillate between 300 and 600 Euros on average.
The appraisal is the only expense that the client has to pay when requesting a mortgage. In accordance with the new Mortgage Law, a distribution of expenses is established in which the bank assumes the cost of the Notary's Office, Registry, Stamp Duty and administration.
The client can freely choose the appraiser who prepares the report on the property to be purchased and negotiate the mortgage with the financial institution of his choice with this report.
It is necessary to bear in mind that the appraisal of the property expires 6 months from the date of its issuance due to the changeable nature of the markets.
2. The notary's office:
The notary is the person who is in charge of giving public character to private documents and authorizing them with his signature and makes sure that the contract of sale and purchase complies with the legality.
That is to say, the notary gives us the guarantee and security that the deed of sale of our house is valid to all effects and purposes.
Before the new Mortgage Law of 2019 the notary fees were paid by the client but nowadays they are assumed by the Bank when there is a mortgage.
Buyer and seller can freely choose the notary's office in which to formalize the sale (even if there is a mortgage).
The notary's office costs are assessed and the fees depend on the value of the property.
3. The registry:
When the notary signs the deeds we have to register them to be considered full owners of the property and with effects in front of third parties giving legal security to the sale.
As it happens with the notary's office the costs of Registry are appraised (they also depend on the value of the sale) and it corresponds to the Bank its payment when there is mortgage.
The Land Registry also fulfills the important function during the process of searching for a second-hand property: to verify that the house is free of charges and debts.
4. The taxes of the sale and purchase:
The taxes that we will pay on the purchase and sale will always depend on whether the house is new or second hand, its price and the time elapsed between the date of purchase and sale of the property.
- In the purchase of new houses the most important tax to take into account is the VAT, which is 10% of the value of the house.
- The second tax to be paid is the stamp duty (IAJD), which will be paid by the buyer and which depends on the autonomous community where we are. As we have commented, it will also correspond to the Bank when there is a mortgage.
- For second-hand properties, the most relevant tax is the Property Transfer Tax (ITP), which will be applied on the price that we have registered. The tax rate depends on the Autonomous Community in which the property is located.
In the Community of Madrid, for example, the general applicable rate is 6%, and there is a reduced rate of 4% when the purchase is made by a large family for their main residence.
Municipal Capital Gains Tax: This tax is levied on the change in value of urban land from the time it is acquired until it is sold. This tax is paid by the municipalities where the houses are located and must be paid by the seller of the property.
It is a common mistake to think that the tax is levied on the difference between the purchase value and the sale value of the property. This surplus value is subject to income tax but not to Municipal Capital Gains Tax (Plusvalía Municipal).
The Plusvalia Municipal is calculated from the value of the land that appears in the receipt of IBI on which tables are applied with rates that apply according to the number of years that have elapsed since its purchase always with a maximum of 30%.
Mortgage expenses:
It is one of the most variable expenses given the great offer that there is in the market of the different financial entities and the different modalities of mortgage loans available (fixed, variable, mixed...).
In general terms, the origination fee is probably the most important expense to pay attention to. It can vary between 0.50% and 2% depending on the market situation.
It is also important to check whether there are any commissions for partial or total cancellation or commitments in terms of the customer's relationship with the bank (taking out insurance policies, direct debits, etc. ....).
In the seller's position, it is also necessary to consider the expenses associated with the cancellation of the mortgage, which must also be done before a notary when the property is sold.
As a general rule and to make a quick calculation we should consider that buying a home will end up costing us between 10% and 12% of the starting price of the sale, and both buyer and seller must take them into account to avoid surprises.
As always in REA we offer you our expert advice to clarify all your doubts and help you throughout the process.