Question:
I have been told to set aside 10% for costs above my purchase price. This seems an awful lot, is this correct?

Answer:
(part 1) Well, it depends on what you buy, and if you have a mortgage or not. If you buy a new property direct from the constructor, and do not take a mortgage, you will have to pay 5% igic (VAT), then 0.75% transmission tax. After this you will be responsible for the payment of the Public Notary who will transact your purchase, and the registration of the property at the land registry. This is not a definite cost but will be around 1200€ to 1500€.  In addition we always recommend the use of a lawyer, plus a Gestoria to change over the utilities (water, electricity etc), which will cost another 1500€ and there is one other town hall tax, usually for a few hundred euros, called “plus valia”. So for a transaction of for instance 200,000€, you would have a total cost in the order of 15,000€, about 7.5%. However if you have a mortgage, this also has to be signed at the office of the Notary office and registered as a deed, and will incur significant costs. Indeed a recent example provided to us by a major Spanish Bank showed an extra cost of Notary, Registration and other costs of over 2000€ on a 90,000€ mortgage. Additionally the banks normally charge around 1% to open a mortgage, so the theoretical 200,000€ transaction mentioned earlier with a 90,000€ mortgage will now have costs of over 19,000€, creeping ever closer to the magic 10%. There is a way to avoid most of this extra cost, and that is to have take over the mortgage from the construction company, a process known as “subrogation” which is very common in Spain.

For a resale property, the costs differ in that there is no 5% igic but the transmission increases from 0.75% to 6.5%, so a net overall increase of 0.75%. The other costs are similar, so for a resale property, you can expect costs of 8% without a mortgage, and 10% with a mortgage. It’s not cheap but it’s worth it!