Buying a property in Ibiza is a dream for many. But how easy is the goal of home ownership in the Balearic Islands to achieve in 2023? And will it get more complex in years to come?
Even before we had to consider factors such as Brexit, the cost of living crisis and fluctuating interest rates, buying a holiday home or residence abroad was not exactly a walk in the park.
And with property prices in Ibiza increasing rapidly in recent years, is now a good time to buy? Will the infamous bubble ever burst?
We spoke to Mortgage Direct Premier’s Senior Consultant Howard Steel and real estate agent Jason Ham, partner of Fantastic Frank Ibiza, to find out what’s what…
From legalities to interior design, we have got you covered! See all instalments from our Ibiza property guide here.
Howard, thank you so much for walking us through the minefield of understanding mortgages! How did you get to specialise in this particular market?
Howard: I’ve been coming to Ibiza my whole life, since I was around four or five years old. I was introduced to the island by cheap family holidays, and I never thought about working out here.
After finishing university, I moved back to London and ended up working for a large Spanish bank. I was working in corporate finance, looking after big institutions with their cross-border requirements.
Before the pandemic, I felt like I needed a bit of a change and I started to think about what I could do next. I could see what was happening in the property market in Ibiza already, and I thought that people out here could probably benefit from something a little bit different.
And in terms of the clients you work with, are your services limited to a particular region?
Howard: No, I work with people from all over the globe, including Europe and the UK as well as overseas. I also help a lot of expats who have moved to Ibiza, but find the system here too complicated to deal with themselves.
Jason, you have been in Ibiza real estate for over ten years now. How do you see the market developing?
Jason: It is well documented that after the Covid-19 pandemic, it went a little bit crazy here. Everyone was coming over, everyone was buying, and it just went mad for a good 18 months.
Now, the market has slowed down, but it’s not because of lack of demand – it’s because there is a lack of stock. And the property that is available can start off overpriced – or it might have legal issues so sometimes you can’t renovate it, which can also cause issues when you are trying to get a mortgage. So we still have the same amount of demand, but it’s taking us much longer to find the right properties. I have a feeling, though, the crazy prices might correct themselves somewhat next year.
You often hear people on the island predict that ‘the bubble will burst in the next few years’ – how realistic is that?
Jason: I don’t think there will be a big drop. Even in 2009, after the banking crisis when the whole world collapsed, Ibiza kept ticking over. It slowed down, but it just kept going. And then it went back up again. It’s a tiny island and the planning restrictions are very strict. So the ones that were already constructed – legally – are going to continue to go up in value.
How important is it to have a mortgage broker and real estate agent when buying in Ibiza?
Howard: People think it will be really easy to put together, but there are so many elements you need to be aware of when you’re buying here – and your ‘circle of trust’ consisting of agent, mortgage broker and lawyer will make that happen smoothly. If you don’t have that, it can still happen, but you might get a lot of surprises along the way.
Jason: On a really basic level… If you find a property and need to get a mortgage, Howard will look at your income and what the best options available on the market are for you. And then you work together with the real estate agent, the mortgage broker and a lawyer to get the purchase over the line.
What are the interest rates like for clients from the UK?
Howard: In Spain, we still have some of the cheapest mortgages. I think one of the best products we have on the market at the moment is 3.8% fixed for 20 years. That, in my opinion, is where the best products are averaging at the moment – somewhere between 3.5 and 4.0%. In the UK, you are still looking at 5.0 to 6.0% – and there is no such thing as 20 years fixed…
And what kind of a deposit would we be looking at putting down?
Jason: As a non-resident, around 30%. Plus, you have to remember the 8-11% transfer tax – so you’re looking at a total of around 40%. As a resident, it’s maybe 30% including the transfer tax.
In terms of eligibility, do the Spanish banks accept financial records from foreign countries or do you need to have a fiscal history here?
Howard: No, you don’t. And even if one bank might not consider you eligible, there are others that will. And my job is basically to find the right bank and product for the client, and present the client in the best way possible to the bank. And then, to save time, I also find the right people within a bank that understand foreign tax returns, for example, better than others, so a part of the process that takes two days doesn’t end up taking six weeks to complete.
Jason: Here in Ibiza – like anywhere else – you have to know what you are doing, but in Ibiza you also have to know the right people to go through to get it done. And you often also end up getting better conditions because of that. It is a tiny island, after all.
In the UK, some homeowners have been hit hard by mortgages that suddenly doubled overnight. What would you say to people who feel nervous about taking out a mortgage abroad?
Howard: To be honest, I can’t remember the last time I did a variable rate mortgage in Spain. In Spain a mortgage really is for life. As long as the customer is comfortable with the rate that they are given at the moment they can choose to lock them in for whichever term they prefer, up to 25 years. So you don’t have to remortgage, and there are no surprises.
What else do I need to know?
Howard: One of the key things to be aware of is timing, because everything takes a lot longer than you might think.
Jason: In that same vein, don’t leave it to the last minute to get your paperwork in order. Because to buy abroad, you need an ID number [NIE], you need a bank account, and then you need your mortgage approved in principle. It’s best to sort all of that out before you start the process so that when the right property comes along you have everything in order. Some people here make offers via WhatsApp, which is not serious, so if you have your agent send a letter of intent with everything in order, that is a great start.
Howard: And I would also advise to have your deposit ready and do a pre-assessment of how much you can borrow. Because banks don’t like it if you ask for a 70% mortgage and then run to get your house in the UK remortgaged to get the remaining 30% together.
Which areas on the island are up and coming now? What are the best areas for investment?
Howard: I’m finding a lot of clients are buying further North. Also San Antonio and the surrounding areas are starting to become very popular as the market is evolving.
Jason: I’d say Cala Llonga is ripe for renovation. And also Es Canar, because Santa Eulalia has changed so much in the past few years. And over on the other side, Port d’es Torrent and Cala de Bou have seen an influx of new restaurants and hotels, too, so that’s interesting.
To get in touch with Howard Steel, please visit www.mortgagedirectsl.com/about-us/howard-steel or email howard@mortgagedirectsl.com.
To contact Jason Ham, visit www.fantasticfrank.com or email jason@fantasticfrank.com.
Portraits and property photography by Sayana Cairo.
