Buying a property in Tenerife can be done in several ways, depending on the buyer’s situation and the type of property. Here are the main methods:

A. Purchase with Mortgage Financing

  • This is the most common option for both residents and foreigners.
  • A mortgage can be requested from Spanish banks, usually financing up to 80% for residents and 60-70% for non-residents. It is used to finance part of the property’s value.
  • A down payment of 20-40% plus expenses (notary, registry, taxes) is required.

Conditions:

  • Residents in Spain: Financing up to 80% of the appraisal value.
  • Non-residents: Financing between 50% and 70%.
  • Proof of financial solvency is required.

Associated Costs:

  • Down payment: 20-40% of the property’s value.
  • Mortgage-related expenses (appraisal, opening fee, insurance, etc.).

Mortgage-Related Expenses:

Property Appraisal

  • What is it? A report that determines the actual value of the property so the bank can decide how much to finance.
  • Estimated cost: €300 – €600, depending on the property’s value and the appraiser.
  • Payment: Covered by the buyer.

Opening Fee

  • What is it? A fee some banks charge for managing and formalizing the loan.
  • Estimated cost: 0% – 1% of the requested amount.
  • Example: For a €200,000 mortgage, the fee can range from €0 to €2,000.
  • Payment: Due upon signing the mortgage.

Stamp Duty (IAJD – Impuesto de Actos Jurídicos Documentados)

  • What is it? A tax applied to notarial mortgage documents.
  • Estimated cost: 0.75% of the mortgaged amount in the Canary Islands.
  • Example: For a €200,000 mortgage, this would be €1,500.
  • Payment: Covered by the bank under the new 2019 regulation.

Notary and Registration Fees

  • What is it? Costs related to the mortgage deed and its registration in the Land Registry.
  • Estimated cost:
    Notary: €600 – €1,500.
    Land Registry: €400 – €1,000.
  • Payment: Covered by the bank (as per current regulations).

Life Insurance and Home Insurance

What are they?

  • Home insurance: Mandatory to cover property damages.
  • Life insurance: Not mandatory but often required by banks for mortgage approval.

Estimated cost:

  • Home insurance: €200 – €600 per year (depending on the property value).
  • Life insurance: Varies by age and coverage, typically €200 – €1,000 per year.

Payment: Depends on the bank; some allow annual or installment payments.

Early Repayment Fee (Optional)

  • What is it? A penalty for paying off part or all of the mortgage early.
  • Estimated cost:
    Variable-rate mortgages: Maximum 0.25% for the first 3 years or 0.15% for the first 5 years.
    Fixed-rate mortgages: Maximum 2% for the first 10 years and 1.5% afterward.

Documents Required to Formalize a Mortgage:

  • Income tax returns for the last two years.
  • Employment contract.
  • Bank statements for the last 12 months.
  • Certificate of property ownership without a mortgage in the country of residence.
  • Employment certificate (indicating position, salary, and confirmation of current employment).
  • Credit history report.
  • In some cases, a bank reference letter.
  • Other documents proving additional income sources (rental contracts, dividend certificates, etc.), especially for loans over €500,000.

B. Cash Purchase

  • If the buyer has the necessary funds, the property can be acquired without a mortgage.
  • This speeds up the process, reduces paperwork, and avoids financial costs.

C. Off-Plan or Under-Construction Purchase

  • The property is acquired at the project or construction stage.
  • Payments are usually made in phases until the property is handed over.
  • It’s crucial to verify the developer’s financial stability and ensure payments are guaranteed.

D. Purchase Through Companies or Investment Funds

  • The property can be acquired through a company to optimize the tax structure.
  • This option is often used by investors purchasing multiple properties.

General Costs When Buying a Property in Tenerife

Besides the property price, there are additional costs to consider:

1. Taxes

  • ITP (Transfer Tax): 6.5% (for second-hand properties). This must be paid within 30 days after signing the deed at the notary.
  • IGIC (Canary Islands General Indirect Tax): 7% (for new properties).
  • Stamp Duty (IAJD): 0.75% of the purchase price if financed with a mortgage.

2. Notary and Registration Fees

  • Notary: €600 – €1,500 (depending on the property’s value). (Exact fees depend on the number of pages in the purchase deed, the number of owners, copies issued, and other requested services.)
  • Land Registry: €400 – €1,000.

3. Mortgage-Related Costs (if applicable)

  • Property appraisal: €300 – €600.
  • Opening fee: 0% – 1% of the financed amount.
  • Life and home insurance (mandatory in most cases).

Non-Resident Tax

As a non-resident property owner (i.e., someone who does not officially live in Tenerife for more than half the year and does not pay income tax there), you are required to pay an additional annual tax known as “Modelo 210.”

  • This tax is calculated based on actual rental income from the property or a notional income.
  • The tax declaration is individual and separate for each owner, based on their percentage of ownership. Example: If a couple owns 50% of the property each, they must each file a separate declaration for their 50%.

Important: The responsibility to pay this tax lies with the property owner. The government will not contact you to request payment—you must take the initiative to declare and pay it yourself.