What you need to know before buying in Mallorca
A comprehensive list of all costs associated to the purchase of a property in baleares
You might have decided to buy a house in Mallorca, and you might have started your search for a house within your budget. But how much can you afford? If you’re not aware of all the hidden costs of buying a house in the Balearic Islands, you might find yourself priced out of your dream property, or what is worse, start the process and then lose money because you had to back out as you weren’t aware of certain requirements or taxes.
Menzel Mallorca always suggests working with a professional, even if the buyer already has a a good understanding of the real estate purchase process in their home country. This is because rules are very different, even between countries of the European Union, which share a lot of the same regulations. Michael has spent many years dealing with mortgages as a banker in Germany, and is still surprised at how different the process is here. Let’s start from the mortgage aspect.
Michael and I working hard to help our clients to buy a house in Mallorca
CAN I GET A MORTGAGE IN A SPANISH BANK AS A FOREIGNER ?
YES, you can get a mortgage as a non-resident foreigner in Mallorca. In fact, we strongly recommend getting a mortgage through a Spanish bank even when you could buy it in cash. There is another post coming soon on that, but you can always contact us to find out more about this recommendation.
A Spanish bank will generally finance between 70% and 60% of the house value if this is your second home and/or you’re not a resident. So here is the first hidden cost you might not have calculated into your plans: You need to have a downpayment between 30% to 40% of the value of the house for the Spanish bank to approve your mortgage. Additionally, the bank may charge a handling fee based on a percentage of the total of the loan (up to 2%) to process your mortgage.
Besides the cash deposit for the mortgage and bank fees, there are the taxes and legal fees. I will expand on this further, but as a general rule, we recommend to have savings of around 10-15% of the value of the house to cover these costs on top of the downpayment for the mortgage.
It is important to note, these following costs you will inccur, even if you’re not going to finance your new home. Here is the further breakdown of these costs as of the year 2024.
What fees are involved in buying a property in mallorca?
If you want to buy a property in lovely Mallorca, there is no way around it: taxes. But don’t let them intimidate you, once you understand them you will be very willing to pay them so you can have your own bit of paradise in the island.
First we have the property transfer tax or VAT. Which applies depends on whether it is a new property or not. If it’s new, you can expect to pay 10% on VAT of the price of the house, while pre-owned properties carry a transfer tax in Baleares of 8%-13%, applied according to a table of prices. See more on ITP below.
Stamp duty, typically 1.5-2% of the property price, will also apply in new homes.
Notary and land registry fees, based on the property price, usually range from 0.1% to 2%.
Legal fees, around 1-1.5% of the property price, is an optional expense but highly recommended so you can be confident through the whole process.
And what about the Real Estate fees? Here is finally some good news. The realtor’s comission of a house being sold in Mallorca is usually paid by the seller.
additional info about Taxes when buying property in mallorca
This is for those who really like to get into the numbers before making plans. I see you, excel fans.
If you buy a brand new home in Mallorca, then you will have to pay more taxes. This is because new-build homes are subject to VAT (IVA in Spanish). In 2024, VAT will amount to 10% of the property price. In other words, you would need to save up an additional 50,000 euros in the case of a 500,000 EUR home and 100,000 EUR in a 1M euro home.
A second tax must be added to VAT in the case of buying a new home in Mallorca: the Documented Legal Acts tax (IAJD, also often known simply as AJD). This tax is the equivalent of stamp duty in Spain and is still paid by the buyer. The amount is 1.5% for residences in the Balearic Islands. If the price of the house is over 1M the tax amount is 2%. Note that these taxes do not apply to previously owned homes, just new builds.
For pre-owned homes in Spain, the most important tax to keep in mind is the Property Transfer Tax (ITP). In this case, the amount depends on the percentage applied to the registered price. Specifically for the Community of the Balearic Islands, this tax gets applied through tiers. The table attached shows how the rates grow as the price goes up. Isn’t it fun? See the example below for an example with numbers.
Example of total costs when Buying a property in mallorca
So let’s look an example. Let’s say you found (or we found for you) the perfect house in the location that you were hoping for. The final price agreed upon is 1.5 M, to make it easy on the numbers. Let’s see the actual fees for it.
Bank
The bank decides to let you borrow 60% for the mortgage, as you’re not a resident. So this means the loan will be 900,000 EUR. You already know that for the downpayment you will need 600,000 EUR. The bank handling fee, let’s be conservative and use the maximum possible, will be 2% of the loan: 18,000 EUR
Taxes
We’re going to assume this house is pre-owned, because let’s face it, the newly built doesn’t carry the same charm.
Using the table above, here is how we calculate the Property Transfer Tax:
From the segment of 1 to 400,000, it’s 8%, so we incur 32,000 EUR in tax.
From the next tier, 400k-600k, it’s a rate of 9%. So we pay for 200,000 * 0.09 = 18,000 EUR.
The next tier is 600k to 1M, and the rate is 10%. The corresponding tax amount is 40,000 EUR
The last tier we apply in this case is the 1-2M. Since you only tax the amount in this tier, 500,000 * 0.12 = 60,000 EUR
So the total in property transfer taxes is 150,000 EUR. Wasn’t that actually fun?
Notary and land registry fees
This fees are non-negotiable because they are regulated by law. They vary depending on the price of the house and other factors, but they never should exceed 2% of the total price. To be conservative on our estimation, let’s use that percentage, getting a total of 30,000 EUR.
Are we there yet??
Now, this is entirely optional but very strongly recommended to get a lawyer for the purchase process. Because we can help to manage much of the paperwork but nothing is replacement to having a lawyer to review the contracts, make due diligence and confirm the legality of the property. The fees may vary, but average fees are about 1% of the final price. For the example house, this would amount to 15,000 EUR.
With this last optional cost, the fees associated to purchasing the new home in Mallorca with a price of 1.5M would add up to 213,000 EUR.
With this understanding in mind, you can feel more prepared and easy when you start browsing for a new property in Mallorca. As a reminder, Menzel Mallorca can help you find the right house, process the mortgage with a Spanish bank and put you in contact with a trusted legal team that can cover all your bases to avoid the mistakes many have made before - and we hear these stories often, because we are part of the expat community of Mallorca.
If you’re interested in further information or diving deeper into the legal aspects of the purchase process, we can send you a guide from our legal partners. Either way, we will be happy to connect with you!
Source for most of the information on this post: https://www.idealista.com/en/news/financial-advice-in-spain/2024/02/15/7875-the-costs-and-taxes-associated-with-buying-a-home-in-spain
