Whilst living in Spain, I have done both – I have bought property, and now I rent. There are good reasons for choosing either option, or perhaps a combination, so today I will try to point out the pros and cons of the different possibilities.
An Englishman’s home is his castle; and that applies when he is abroad too. The natural desire is to own a property that you can call your own; and the majority of expats decide to buy, having decided on their preferred location. Sometimes though, you only discover the downside of an area or particular district after you have parted with your money and moved in. I would advise anyone to consider renting for a limited period of three months before buying, to discover the true flavour and aspects of the town, urbanisation or village and its surroundings. If that sounds like too long a time, rent for at least 6 weeks – preferably in the off season, so you can see what life is like when most tourists have gone and life has slowed down.
The advantage of buying is that you can immediately start to make the property feel like home by renovating or changing things around precisely to your taste. It also becomes an asset to pass on to your children – but do check the local and national inheritance laws before you buy, as you may find it better to buy in a certain way to lessen the inheritance tax burden on your beneficiaries. Always seek professional advice when considering inheritance planning.
With planning permission, you may be able to extend your property to your needs - and whilst property prices in Spain have fallen in recent years, they will eventually increase in value. In fact, there are already signs of this, particularly in Madrid and Barcelona. It is still a good time to buy a property at the moment, which is another reason to take this route –especially if you are a cash buyer and don’t require a mortgage.
Speaking of mortgages, they are hard to come by here in Spain, though the banks are promising to ease up and lend more. You will need at least a 20% deposit, mortgage rates are variable and currently very low indeed; you might feel this is an incentive to buy in Spain right now, providing that you meet the mortgage lender’s criteria.
Buying property of course incurs additional costs – count on around 10% of the purchase price to cover notary fees and taxes, plus agents’ fees, which are around 3 - 5%. There are also ongoing costs, such as IBI (similar to a community charge), home insurance, maintenance, and utility costs. If you buy to let, or decide to let out your home out to tourists, you will attract an income, which in some areas can be a very good income during the summer months. More and more local authorities require the owner to apply for a licence to let their property to tourists, so you should check this out with your agent before buying. Income tax will need to be paid on any rental income, whether you are a resident of Spain or the UK.
Europeans are probably more keen on renting than British expats, but there are some clear advantages to it. Under new Spanish laws, long term leases are fixed at 3 years renewable; and there are rules in place obliging landlords to maintain and repair rental properties. Rents are low here compared to the UK; and you can find a good 2/3 bedroom apartment for around 425 -500€ a month, with parking and in a block which may have a shared pool. Houses and villas will cost from 750€ upwards a month. You will be asked for a deposit of one or two months’ rent, which should be returned to you when you leave – providing the property is in the same condition as it was in when you took on the lease. Most rental properties are furnished, but there are some very attractive unfurnished ones to be found, mostly recently built.
Since the landlord must maintain the property, this is one less cost for the tenant. In some leases, the IBI is shared between the landlord and tenant, and in others, either will pay. There is usually a community charge, unless the property is an individual house, not on an urbanisation. By the way, the community charge also applies to owners as well as tenants. Usually one or two months’ notice must be given in writing if you wish to leave, but generally you are free to move without the worry of having to sell first. Some people like this idea of freedom of movement.