Renting vs buying a property in Spain: mortgage considerations

Planning your move to Spain and deciding whether to rent or buy a property? Let's think about how getting a mortgage fits in, especially if you're not sure about staying long-term.

We cover all these concerns, acknowledging that choosing between renting and buying extends beyond financial calculations. 

Dive into our guide for insights on renting versus buying a property in Spain, helping you decide what aligns with your plans. 

Renting vs. buying a property in Spain as non-resident: an overview

Whether renting or buying, you need careful financial planning and an understanding of legal protocols.

While the processes for renting or buying involve different steps for non-residents, they share several commonalities:

• obtaining a Foreigner Identification Number (NIE) 
• demonstrating your financial stability  
• securing insurance policies to safeguard against possible property damage
• responsibility for setting up essential utilities, including water, electricity, and the internet

Requirements

Opting to rent can often be the quicker, more straightforward path. This process still calls for essential documentation, including your identification and proof of income, and sometimes a reference from a past landlord, vouching for your reliability as a tenant.

On the other hand, buying a property is no small venture. It's a financial engagement that promises long-term rewards, including the growth of property equity and a sense of permanent stability.

This route demands a more extensive array of documentation, including proof of income and deposit, credit reports, or bank statements.  

Deposit

Most landlords require a security deposit equivalent to one to two months' rent. Unlike a deposit for a mortgage, this one is refundable at the end of your lease, provided there are no damage or contractual issues.

Buyers usually pay a deposit (often 10% of the purchase price) when signing the preliminary contract (contrato de arras). Besides that, in the case of a mortgage, as a non-resident in Spain, you should have a 30% cash deposit of the property’s value.  

It may be a significant expense at first, but it's wise to take a long-term view and consider it as an investment. You're paying for something that will either stay yours or that you can subsequently rent out.

The process

Renting a flat in Spain as a non-resident involves:

• Searching for a property online, through real estate agents, or local listings
• Viewing the property and negotiating terms
• Providing necessary documents
• Signing the rental agreement (contrato de arrendamiento) and paying the deposit plus the first month's rent
• Moving in

When it comes to buying property in Spain as a non-resident, the process is more complex and involves: 

• Property search through property websites and real estate agents
• Viewing and selecting a property
• Negotiating the price
• Signing the initial contract and paying the deposit
• Securing a mortgage 
• Signing the sale contract (escritura de compraventa) in the presence of a Notary
• Registering the property in your name

While many Spanish banks do not impose restrictions based on property value or the nationality of buyers, it's essential to be aware that every application is evaluated on a case-by-case basis.

What’s the property market vs the rental market in Spain?

In February 2024, buying a house was the most expensive in Illes Balears region, at 4,515 EUR/m². In Castilla - La Mancha, it was much cheaper, at 942 EUR/m². 

For renting, Madrid was the priciest at 20.74 EUR/m² each month. Extremadura region was the cheapest, at just 6.72 EUR.

Property prices in Spain vary significantly by region, influenced by factors like job prospects, quality of life, population density, and local amenities such as cultural and recreational attractions.

Let’s take a look at some of the popular cities to understand the prices better: 

How much does it cost to rent a property in Spain vs paying a monthly loan?

It’s essential to keep in mind that the cost of renting versus paying a monthly loan in Spain largely depends on the region, property type, and personal financial circumstances.

The average rent per m² in Spain is 12.79 EUR, marking an increase of 15.75% compared to the average in February 2023. Considering a 100 m² property, the monthly rent would 1,279 EUR. 

The average mortgage interest rate in Spain was 3.32% by the end of 2023, with the average mortgage duration being 25 years and the average amount issued per mortgage being 143,400​ EUR.

Using a mortgage calculator, the estimated monthly payment for a 25-year mortgage at a 3.32% annual interest rate for a 143,400 EUR loan is about 704 EUR.

Some key takeaways: 

• The estimated monthly mortgage payment appears to be lower than the estimated monthly rent for a 100 m² property
• Over the long term, buying could be beneficial as you're building equity in a property, despite the upfront costs 
• Renting could be more flexible and may have lower upfront costs, but you're not building equity

The advantage of taking out a mortgage to purchase a property is that you are leveraging the bank's money to finance your acquisition. At first glance, the mortgage application process may seem daunting, especially for non-residents. Fortunately, Homevest provides a solution that can simplify the process for you.

For instance, Homevest can assist you in exploring competitive mortgage offers from top Spanish banks like CaixaBank, Sabadell, Santander, Unicaja or Cajasur. 

You can upload all the necessary mortgage documents into the platform, and then enjoy the convenience of managing and tracking the progress of your application directly from your Homevest account.

Before jumping to conclusions, save valuable time by discovering how much you can borrow based on your details. This information will help you gain a clearer understanding and effectively plan your budget.

Renting vs buying a property in Spain: pros and cons

Renting a property in Spain as a non-resident: pros and cons

Pros

• more flexibility as you can move easily without the commitment of a mortgage
• lower upfront costs (besides a small deposit, you should know that starting June 2023, all real estate agency fees are to be paid by landlords, with tenants no longer required to contribute towards these fees)
• no maintenance costs 
• less financial risk

Cons

• no equity building and no investment
• less control (you’ll need permission for modifications)
• potential rent increase 
• uncertain long-term availability (the landlord may reconsider long-term renting and opt to convert the property into an Airbnb for tourists, especially if the apartment is located in a central area)

Buying a property in Spain with a mortgage: pros and cons

Pros

• equity building
• potential for appreciation 
• fixed-rate mortgages provide payment stability as the monthly payments remain constant
• control over property
• opportunity to generate income by renting out the property 

Cons

• high upfront costs (down payment, taxes, and other related expenses)
• responsibility for all maintenance, repairs, and improvements

Review a checklist of documents that Spanish banks usually need for a mortgage application. This will provide you with vital knowledge and guide you to sidestep three typical errors non-residents make when seeking a Spanish mortgage.

Is buying with a mortgage a better investment?

The answer to this question depends solely on your financial situation and risk tolerance.

If we compare the long-term benefits, buying a property with a mortgage could be a better investment. You'll be investing in a property for yourself rather than paying monthly rent to another owner.

“A mortgage allows you to maximize the return on your initial investment, which is your down payment, as long as the property value increases. For instance, if you buy a property of 200,000 EUR with a mortgage of 150,000 EUR and a deposit of 50,000 EUR, a 10% increase in the value of the property (20,000 EUR) translates into a 40% return on your initial investment”, says Iván Bellod, Lawyer and Managing Director at Hoteland.

Analyze what’s best for your situation and consult with financial and real estate professionals to understand the implications and potential returns of buying with a mortgage versus other investment opportunities.

To secure competitive mortgage offers from the Spanish market, consider using Homevest. This platform simplifies the application process by connecting applicants with multiple banks competing head-to-head, ensuring the best mortgage deals.

Sources used and checked in March 2024:

1. Property price data in Spain
2. Best mortgage rates Spain
3. Regulations on Spanish housing law

We recommend obtaining professional or specialist advice before taking or refraining from any action based on the content in this article. The information in this article does not constitute legal, tax, or other professional advice from Homevest Limited. Prior results do not guarantee a similar outcome. We make no representations, warranties, or guarantees, whether express or implied, that the content in this article is accurate, complete, or up to date.