Ten tips when money is tight in Spain

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15 October 2024, 9:00

It’s no secret that hard times are upon us. Unchecked inflation, low wages, high taxes, high unemployment, and rising mortgage costs may push some families off the edge.

With this in mind, I’ve written a short article to help struggling families in Spain alleviate their cash flow problems.

10 tips when money is tight

Follow a dación en pago (handing back the keys). This option should only be considered as a last resort when all other options have been exhausted. This is surrendering your keys to your lender by way of signing a deed witnessed by a notary whereby you relinquish ownership of your property. In exchange, the lender commits not to chase you, whether in Spain or abroad, for the outstanding debt. In effect, a lender fully discharges you of your mortgage liability. Two things are required for a lender to accept this procedure; the property must not have slipped into negative equity and your lender must not have instigated a repossession procedure.
Fraction payment of local taxes. You can request from regional tax offices to spread out tax payments over time, in instalments.
Request your landlord a rental reduction. Particularly in commercial premises, tenants are asking more and more for payment facilities or reductions in monthly payments. Landlords would rather come to an understanding with a good tenant than let them go and see the whole place boarded up for years.
Swap your mortgage loan to interest-only (“carencia”). Lenders are open to renegotiating your mortgage terms to avoid you defaulting on a loan. Don’t be afraid to pick up the phone and speak to them. This can be arranged whilst the property is put up for sale or just to weather off the storm. Spanish lenders will grant it for a year or two at most.
Extend mortgage repayments an additional number of years. The last thing Spanish lenders want is for you to default on your mortgage loan. They are very accommodating and open to renegotiating the repayment terms, even extending them. The drawback is that on doing so, the amount of interests you pay are rolled up. This means that, in the long term, you end up paying far more but you gain some breathing room at present buying you time until your finances shore up. The government is now allowing this change free of charge to struggling mortgage borrowers providing they are residents, and the property is their main home (permanent abode). Borrowers do not pay for Notary or Land Registry fees on following it.
Apply for a Lifetime Loan. Is a special type of home equity loan available only to senior residents. It allows owners to release equity from their homes converting it into cash by way of placing a charge against their property (which acts as collateral). The loan does not have to be repaid during the homeowner’s lifetime.
Discharge your mortgage loan. In a context of soaring inflation (ongoing wars, post-Covid-19 economic fallout, supply chain disruptions, etc), this translates into higher interest rates which in turn impact on higher borrowing costs. These rise month-to-month, taking a sharp toll on a family's finances. The smart thing to do - providing you can afford it – is to simply repay your mortgage loan in full ahead of time and cancel it. This saves you a great deal of money in the mid to long run.
Apply for debt consolidation. There are scores of financial companies offering this service. Basically, they group together all your existing debts with different lenders (ranging from credit card debt to personal loans) and concentrate them all in the hands of only one lender who extends the loan repayments over time. The immediate consequence is that your monthly repayments are sharply reduced making them far more affordable (it is not unusual to reduce by as much as 70% your monthly loan repayments). However, the catch is that - once again - on extending the financial commitments over time, you will repay far more interest in the long run.
Follow a Dissolution of Joint Property Ownership. Falling on hard times may drive a wedge between couples, families and friends making cohabitation a challenging prospect. A DJPO allows joint owners to re-arrange their property shares in a tax-efficient manner enabling the outgoing joint owner to transfer his share to an existing co-owner legally waiving extreme Property Transfer Tax and paying in lieu only 1% Stamp Duty, or less. This procedure’s highlight is that it saves property buyers over 86% in Property Transfer Tax. A DJPO is suitable in three cases: a divorce or separation, re-arranging inheritances, or re-arranging property holdings between family and friends. For a DJPO to work, you need to already own a percentage of the property. If there is a mortgage loan against the property, it requires a lenders approval.
Bare ownership and usufruct right: cash in on your property. It’s no secret that one of the best investments people can make during their lifetime is to buy property. Unbeknownst to many, their Spanish properties have greatly appreciated over time. There is a legal way to tap into this pent-up equity without needing to sell the property, or even move out of it! Senior owners should carefully consider exploring selling what is known as bare ownership. In this way, they get the best of both worlds; they can remain living at their property for the remainder of their lives, whilst they receive a tidy amount of money in their account every month.

Every little helps.

At Larrain Nesbitt Abogados (LNA) we have over 21 years of experience specializing in immigration & residency visas. We also assist clients in buying, selling, or renting properties in Spain. You can contact us by e-mail at info@larrainnesbitt.com, by telephone at our UK line (+44) 0754 3838 218 or Spanish line (+34) 952 19 22 88, or by completing our contact form.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. Ní neart go cur le chéile. VOV.