If you are planning to buy a property and need financing, it is important to understand what property purchase with mortgage subrogation entails, under what conditions it is carried out, what requirements must be met, and what happens if the bank does not approve it.
According to the latest data published by the National Statistics Institute (INE) in January this year:
– The total number of mortgages granted for residential properties increased by 11% compared to January 2024.
– The average interest rate was 3.08%.
– The average mortgage term was 25 years.
– Debtor subrogations (change of mortgage holder) increased by 649.7%.
These figures show that mortgages continue to rise, indicating a healthy property market in Spain. They also highlight that mortgage debtor subrogations are common and have increased significantly.
What does property purchase with mortgage subrogation mean?
Imagine the following scenario: you want to buy a property in Barcelona. You find one you like, and it has an existing mortgage with 10 years remaining and a balance of €80,000. You are interested in taking over the mortgage (subrogation) because you need financing, and the conditions are favourable.
The process works as follows:
– There is a change in the mortgage holder, transferring the mortgage from the seller to the buyer.
– The financial institution must approve the change and will assess the new debtor’s solvency before doing so.
This process is usually quick, although the timeframe depends on the availability of all necessary documentation, the bank’s cooperation, and the efficiency of all parties involved.
This situation occurs frequently and is worth understanding. It also happens when purchasing a newly built property, where the buyer can take over the developer’s mortgage.
What are the advantages of mortgage subrogation?
It is important to carefully analyse all the data and make calculations. Generally, this type of transaction offers several advantages, such as:
– The seller can save on mortgage cancellation fees.
– The buyer avoids the opening costs of a new mortgage.
As a result, the process is simplified, and both parties benefit.
What costs are involved in a property purchase with subrogation, and who pays them?
In this case, we must consider:
– The costs associated with the property purchase:
º Notary fees. These are regulated by law.
º Land registry fees. Also regulated by law.
º Administration fees.
– The costs associated with mortgage subrogation, which may include:
º Mortgage subrogation fee, typically a percentage of the outstanding mortgage balance.
º Buyer’s creditworthiness assessment.
º Property valuation (if required).
º In this case, notary, land registry, and administration fees must also be considered.
In addition to these costs, taxes must also be considered: VAT or Property Transfer Tax (ITP), municipal capital gains tax, and Stamp Duty (if applicable).
Is it possible to modify the mortgage conditions during subrogation?
Yes, it is possible that you may need additional funds and request a mortgage novation to increase the loan amount or extend the repayment period. The bank must approve both the novation and the subrogation.
In some cases, the bank may impose changes to the mortgage conditions, such as:
– A change in interest rates. The financial climate may have changed over time, leading to an increase or decrease in interest rates.
– Requirement to take out insurance, pension plans, or credit cards. These may incur additional costs.
It is important to carefully analyse the bank’s offer to avoid additional costs with the subrogation and compare it with other offers from different financial institutions to determine which one is more convenient.
Step-by-step guide to property purchase with subrogation
The process of purchasing a property with mortgage subrogation may follow these steps:
– Review of the signed mortgage. In some cases, there may be restrictions on subrogation or other limitations. Read the document carefully and consult the bank that granted the mortgage.
– Informing the buyer. The seller must inform the buyer about the existence of the mortgage and its conditions (term, outstanding capital, interest rates, cancellation conditions, etc.). To do so, the following documents may be provided:
º The previous property purchase deed with the mortgage.
º The property’s simple note.
º A bank certificate regarding the outstanding amount to be paid.
– Informing the bank. The bank will need to analyse the situation and the solvency of the new debtor before deciding whether to accept the subrogation.
º If the bank does not accept it, the seller will have to cancel the mortgage so that the property can be handed over free of encumbrances, and the buyer will need to arrange a mortgage with another institution.
º If the bank accepts, it may propose new conditions to the buyer, such as changes in the interest rate or term. It may also charge fees and expenses. The bank is obliged to inform the new debtor of all the conditions.
It is important to remember that, since the amendment of the Mortgage Law, the bank may offer products (home insurance, life insurance, or pension plans) and request other types of links, but it cannot tie them to the granting of the mortgage, only to obtaining a reduction in conditions.
– Formalisation of the property purchase with subrogation. Finally, the buyer, the seller, and the bank formalise the purchase deed with mortgage subrogation before a notary. The buyer becomes the owner and assumes the debtor’s position in the mortgage.
– Payment of taxes. Once the deed is signed, the corresponding taxes (VAT, ITPA, AJD, municipal capital gains tax) must be paid. This can be managed by the interested parties themselves or outsourced to an agency to handle everything.
– Registration in the land registry. The deed is registered in the corresponding land registry so that third parties are aware of the transaction and the mortgage encumbrance.
How to determine if property purchase with subrogation is the right option for you?
If you are considering buying a property that has a mortgage and want to know if purchasing with subrogation is right for you, you should consider several aspects:
– The mortgage term and the amount still to be paid. It may suit your needs, or you might require a longer term or lower instalments.
– The conditions of a new mortgage. Calculate the cost of a new mortgage with the bank that already holds the property’s mortgage or with another bank, to compare and determine which option is more favourable.
– Consult with expert real estate advisors to guide you on the best course of action and available options.
At Proddigia, we can assist you if you wish to acquire a property and take over its mortgage. We will analyse your case, present the available alternatives, and support you throughout the process to ensure your purchase is legally secure. Get in touch with our team today.
