Many overseas buyers assume that obtaining a mortgage in Spain is much the same whether they are buying an apartment in Madrid, a villa on the Costa del Sol or a traditional country property in Andalucía. In reality, banks view rural property very differently, and this has a significant impact on the amount they are prepared to lend.

The reason for this is partly cultural and partly economic. Spain has been slow to fully grasp the potential for working remotely. The introduction of a digital nomad visa in 2023 arrived three years later than countries like Estonia, Georgia and Croatia even though, because of its climate, cost of living and excellent access, Spain is perhaps the ideal country for digital nomads.

Another key factor, which is not unique to Spain but is particularly acute here and is important from the lender’s point of view, is the drift away from living in the countryside, partly because the opportunity for work is better in urban areas and partly because Spanish people prefer to live alongside their fellow beings. They are inherently social. In 1970 approximately 33% of Spain’s population lived in rural areas. Today that figure is approximately 19%.

So, if you are planning to buy a cortijo, country house or other rural property, it is important to understand from the outset how Spanish lenders assess these purchases.

The Maximum Loan Percentage Is Lower

For urban residential property, banks frequently lend between 70% and 80% of the property's value to non-resident buyers, depending on the applicant's circumstances and whether it will be the applicant’s primary residence. Rural properties are a different matter.

Spanish banks regard country properties as harder to sell if they ever need to repossess them. For that reason, lending policies are more conservative.

It is common for lenders to limit borrowing to 60% of the lower of:

• the agreed purchase price; or
• the official bank valuation.

The phrase "the lower of" is extremely important.

Rural Valuations Are Often Lower Than the Purchase Price

Unlike urban apartments, there may be very few comparable sales for country properties and they may differ wildly in characteristics such as views, which are not taken into account in Spain’s rather unsophisticated valuation system. Every cortijo is different. An olive grove will add value even though the buyer has no intention of exploiting it. Attractive woodlands may yield a value of zero.

Consequently, official mortgage valuations are more often than not lower than the price negotiated between buyer and seller.

An example:

• Purchase price: €500,000
• Bank valuation: €430,000

The bank does not calculate 60% of €500,000.

Instead, it calculates:

60% × €430,000 = €258,000

The buyer therefore needs to fund the remaining €242,000 of the purchase price from their own resources before purchase costs are even considered.

Additional Purchase Costs

It is important to take into account the additional costs involved in buying property in Spain.

These typically include:

• Property Transfer Tax (or VAT on new properties)
• Notary fees
• Land Registry fees
• Legal fees
• Mortgage-related costs where applicable
• Valuation fees
• Share of Agency Commission

Depending on the region and the type of property, these costs amount to 10–14% of the purchase price.

Using the previous example:

Purchase price: €500,000

Purchase costs (approximately 12%): €60,000

Total funds required: €560,000

If the mortgage available is €258,000, the purchaser must contribute approximately €302,000 from their own capital.

In other words, although the bank may describe the loan as a 60% mortgage, it actually finances only about 46% of the total acquisition cost.

Where valuations are particularly conservative or purchase costs are higher (as in Extremadura or Cataluña, for example) the effective financing can fall to around 40% of the total amount required.

Rural Properties Require Additional Checks

Valuers also examine rural properties more closely than urban homes.

The surveyor will consider:

* whether buildings are correctly registered;

* whether extensions have been legally constructed;

* planning status;

* access rights;

* water rights;

* electricity supply;

* agricultural classifications;

* protected land designations.

Any uncertainty in these areas can reduce the valuation or even lead to a mortgage application being declined.

A Larger Deposit Is Usually Necessary

For buyers accustomed to mortgage finance in Northern Europe, the required deposit can come as a surprise.

As a general rule, anyone purchasing rural property in Spain should expect to provide substantially more than half of the total funds needed.

While every case is different, it is prudent to assume that your own contribution may need to cover around 60% of the overall cost of acquisition, leaving the mortgage to finance only around 40%.

If the bank's valuation is close to the purchase price, you may borrow more. If the valuation is significantly lower—as is often the case with country properties—the amount available may be less.

Comment

None of this should discourage buyers from purchasing rural property. Spain offers some of Europe's most attractive country homes and is a fantastic country to live in. Most of us who have lived here for a long time regard it as a privilege. If you need to finance part of your purchase, the key is to understand the financial reality at the outset to avoid potential disappointment at a later stage.