Stating the obvious  a key reason why one might want to consider a mortgage will be for the simple reason of affordability! But beyond that there are some good reasons why a “purchaser” (and I make a very clear distinction here from an “owner”) may want to consider a Mortgage.

Unlike in other part of Europe, including the UK, in Mallorca and other areas of Spain it is often very complicated to release equity after a purchase has been completed, not withstanding the amount of equity in the property and the personal financial position of the owner. If you think there may be a reason in the future why you might want to access your capital, without selling the property, it may well be better to take out a mortgage on purchase rather than “waiting to see”!

With interest rates so low it isn’t difficult to see why maintaining liquidity might well open up other areas of investment with higher returns. ie mortgages are traditionally “cheap money”!

Furthermore a mortgage can reduce some important tax liabilities, such as the Wealth Tax and inheritance tax, as the mortgage amount is deducted from the value of the property, and tax only payable on the balance.

To be fair this is really only an issue for the wealthiest buyers, purchasing “big ticket items” but it is still worthy of note! Taking a look at the current Wealth Tax position in Mallorca will demonstrate the position:

What is the Wealth Tax?

An annual tax, payable on the total value of your taxable assets as at 31st December. The tax is applicable to worldwide assets for Spanish residents but only assets located in Spain for non residents.

How much is the Wealth Tax?

In Mallorca and the wider Balearic Islands the wealth tax rates currently (2017) range from 0.28% to 3.45% of the total value of the assets. This is a progressive tax with the highest rate applying for assets over circa €10,000,000.

That said there are tax free allowances of €700,000 per individual (and an additional €300,000 allowance on one’s main home, IF one is a resident ie non residents only receive the individual allowance of €700,000.

So as one can see it is really only a “blow” for the wealthiest but if you are one of them it is a very relevant “blow” and one where appropriate tax planning is recommended.

For more information on mortgages, tax planning or buying a property in Mallorca please contact me