Mallorca is undoubtedly one of the most sought-after locations in Europe. Owning a property in Mallorca has become a dream for many successful international entrepreneurs seeking the Mediterranean lifestyle and over the last few years, we have seen an exponential increase in demand for premium properties. When you decide to purchase a property in a foreign country, there are many points to consider. Every country is different and has its own property and tax laws. It is very important to obtain all the information on purchasing and owning real estate in Spain, especially in the Balearic Islands. In this blog post, written in collaboration with our partners Lionsgate Capital, Mallorca’s leading mortgage brokers, we look at the main advantages of financing your real estate investment in Mallorca.
Financing a property in Mallorca with a mortgage is a smart choice
It makes sense to finance your real estate investment in Mallorca, even if you have the funds to buy your property without a mortgage. By purchasing your property with a mortgage, you can benefit from important tax deductions, maintain liquidity and diversify your investment into other areas that generate higher returns. In the end, it is all about making the maths work in your favour!
Access to Tax deductions
The Wealth Tax in Spain varies between the different Autonomous Communities and is applicable to all property owners, regardless of whether they are resident in Spain or not. In the Balearic Islands, wealth tax generally applies to anyone who has net assets in Spain of over € 700,000. The wealth tax is on a scale and ranges from 0.28% (for net wealth of less than € 179,472) up to 3.45% (for net wealth of € 10,909,915 or more) and it is paid every year! The tax base is calculated by taking into account the value of the net assets on 31st of December each year. The most important thing to know is that mortgages are deductible for Wealth Tax purposes, so the higher the value of the property to be purchased in Mallorca, the more sense it makes to obtain a mortgage to significantly reduce the tax implications. Mortgages can also be deductible for inheritance tax purposes.
We recommend that all clients purchasing a property in Mallorca engage a professional legal and tax advisor to study their individual case and advise them in relation to their particular situation and property transaction.
Maintain liquidity and diversify your real estate investment
It is not always wise to tie up all your funds in a single asset, as this can significantly limit your financial flexibility. One of the key benefits of purchasing a property in Mallorca with a mortgage is that you can maintain liquidity and diversify your investments into other higher yielding areas. Also, whereas in other European countries you can easily release equity and get a mortgage years after buying your property, in Spain it is not easy to release equity after the purchase. It is therefore very important to consider this and taking out a mortgage at the time of purchase.
The role of an expert mortgage broker
Obtaining the best mortgage in Spain can be a challenge, especially if you are a non-resident and do not speak the language. All the banks are different. It is very important that at the time of your purchase you are matched with the best bank that offers the best conditions for your particular transaction. To achieve this, it is essential that you contact the right professionals who can guide you through the entire process. The very best option is to use an experienced mortgage broker who speaks your language and has an in-depth knowledge of the Spanish market. They will be able to guide you through the “Spanish banking jungle”, as one client once described it, and help you obtain the highest return on your investment by finding the best mortgage and terms.
If you decide to go directly to a bank, your options will be limited, as the chosen bank or institution might not be the right fit for you or you might not obtain the best conditions. A small difference in the interest rate can save you substantial funds over the years! At Engel & Voelkers we highly recommend that you contact the island’s top mortgage brokers, Lionsgate Capital, who have been collaborating with Engel & Voelkers Mallorca for many years. Together with Engel & Voelkers Mallorca, Lionsgate Capital has helped many international HNW and UHNW clients to optimise their real estate investments with the best financial solutions.
Lionsgate Capital are the leading mortgage and finance brokers in the Balearic Islands. Based in Mallorca, they will help you to obtain a bespoke mortgage with the best terms and conditions to suit your circumstances and preferences at any given time. The team of experts at Lionsgate Capital have over 50 years of combined banking experience and have access to all the banks in Spain and private banks in other European jurisdictions, as well as preferential conditions for all their HNW and UHNW clients. Their team of mortgage brokers come from the banks but are on your side, which means that they will give you impartial advice and the most competitive options, guiding you through the entire process from the first contact to completion. Their trusted service and expertise will save you time, money and effort!