This is a question that comes up all the time, when I’m working with a new client who hires me to help make the best possible property purchase in Madrid.
I always make sure to include the expenses that I describe below in the overall purchase budget.
As we explain to our clients, every foreseeable expense will be factored into their maximum total budget, and everything means everything: purchase price, levies, taxes & government fees, and any possible renovations.
In this way there are no surprises, and we have a much more precise idea of the price range in which we can search for that ideal property.
But what taxes, fees, and expenses do we have to reckon with?
“ITP” (Property Transfer Tax)
In Madrid, this tax is a 6% of the purchase price, in general. Some reductions apply for purchase prices below 250,000€ or if the buyer has a large family. This tax is only paid if you are buying a second-hand home, not new-builds.
“IVA” (Value Added Tax) and “IAJD” (Documented Legal Acts Tax)
If what you buy is a new-build, not a second-hand home, you will not pay the ITP.
On the other hand, you will pay 10% VAT if you buy a free-market home, 4% if it is social housing, and 21% if it is a commercial or other type of property.
Storage rooms and up to two parking spaces in garages are counted as part of the dwelling as far as this tax is concerned.
Notaries charge a fee for their services, which are controlled by the government-controlled (in other words they all charge the same amount for the same service).
The exact amount depends on several factors, including the purchase price. You should put aside an average of around 1,000€ for this concept (for recent purchases
I have seen notarial invoices of 700€ for a purchase of 170,000€, and 1,700€ for a purchase of 2,400,000€.
Registrars have to register the change of ownership, so that you appear as the new official owner in the Land Registry.
In this case, the fees are also regulated, and are directly proportional to the purchase price of the home.
Factor in another 500€ to 1000€ for this concept.
If you ask for a mortgage to finance your purchase, the bank will use an agency of its own choice to formalize all the procedures.
These fees are not fixed, but are usually somewhere around 300€.
Expenses associated with the constitution of the mortgage
An official appraisal is mandatory when you apply for a mortgage, and must be paid for by the buyer, not the bank. Calculate between 300€ and 900€ (or more, for really large properties) depending on the value of the house.
Since the new Mortgage Law was passed in 2019, other costs associated to the constitution of the mortgage, such as taxes, notary and registry fees are borne by the financial institution granting the loan.
But there may be other expenses that depend on the specific conditions of the mortgage proposal, which in turn will depend on your financial profile and the bank policies; so they may or may not exist. We mention them just to bear them in mind:
Most banks already offer mortgages with no opening fee, but it is important to ask and make sure.
Depending on the financial profile of the client, some banks may require that they take out an insurance that covers the non-payment of the mortgage throughout the life of the mortgage. We must also ask and make sure it is not a requirement, because in some cases the premium can be up to 9% of the value of the credit granted.
In summary, the only expense associated to a home purchase we know for sure is the ITP tax, which in most cases is going to be 6%.
For the rest of the fees and costs, the best thing is to make a provision based on an approximation, and as always, we recommend being conservative.
That is to say, although possibly the sum of all costs that we have just described will not exceed 7% or 7.5% of the purchase price, it is better to have a 10% of the purchase price set aside to cover these concepts.
Do you want to know more about the home-buying process in Madrid? Do you need help finding that ideal home?
Contact me without obligation!