A number of Spanish banks have made recent moves to tighten up their non-resident lending to protect themselves against fraudulent applications. Many are now double and triple checking documentation, some are registering Spanish granted non-resident property buyer loans in the UK on the client's credit file ands others, such as Banesto, have opted to introduce MIGs.

Earlier this year, Banesto had withdrawn all of its non-resident lending via intermediaries and was only offering non-resident applicants a self-certification loan on behalf of GMAC. However, the bank, part of the Santander group, is now offering an alternative which includes asking clients to pay 'an insurance', otherwise known as a MIG. SolBank, Barclays and Bancaja are also using MIGs.

A Mortgage Indemnity Guarantee is an insurance policy designed to protect the lender against loss in the event that the customer defaults on their payments and the mortgage falls into arrears. The policy is issued at the start of the loan and usually based on a percentage of the amount borrowed, often 1–2 per cent. The higher the amount borrowed, the higher the percentage.

Although the MIG protects and is for the benefit of the bank, it is the client that pays the premium, and it's for this reason they came under criticism in the UK a decade ago. For mortgages of up to 80 per cent LTV, 80 per cent of the banks in the UK which apply a MIG now pick up the cost of the premium themselves, and at 90 per cent LTV or above 30–40 per cent of the banks pick up the cost.

For buyers looking at affordable Spanish property options which may not require a mortgage, many fractional ownership schemes are now becoming more widely available in the country.   

Spanish Quarters' is currently offering overseas property buyers the opportunity to co-own a fully furnished holiday home in Spain or Fuerteventura, with each quarter entitling the owner to 13 weeks annual usage. Costs can also be offset with the company's rental management service.

Karen Yates purchased a quarter of a property through Spanish Quarters in Duquesa Village, on the Costa del Sol, and says: "Fractional ownership has given my family an affordable holiday home, in a part of the world we love. Using the rental management service I can rent out the weeks I am not using the property, which  with the busy lives we lead it is an added bonus, as we don't have the time to get involved in such time consuming rental management issues."

As with everything in life, some fractional ownership schemes are better than others, so do your homework before committing to rental and financial decisions on your Spanish property.

Search for property in Spain

Read the latest Spanish Property Bulletin ezine FREE

Article first published 19 October 2007

Thanks to Sarah Drane, sarah@purplecakefactory.com, for her help with this article