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Bank Guarantees In Spain For New-Build Properties: Safeguarding Deposits For Property Buyers

Are you thinking of buying an off-plan property in Spain? Whilst it’s incredibly exciting to think about your brand-new Spanish home, there are lots of additional things to consider with a new-build property. 

One of the main worries Spanish property buyers have when it comes to an off-plan property is transferring money. How do you do it? Is it normal to pay for something you haven’t actually seen yet? What’s a bank guarantee and how can it protect your money?

In this article, we’re going to discuss everything you need to know about bank guarantees so you can rest assured knowing your money is safe as your dream home is being built.

How Does Buying An Off-Plan Property Work In Spain?

Buying a property in Spain that hasn’t been built yet differs somewhat from other countries. Whilst you’ll likely see the plot of land, a showroom and digital reconstructions, the developer may also require you to pay an initial deposit followed by agreed-upon instalments up until the point in which you sign the title deed (Escritura). These initial instalments can be up to 80% of the value of the home, which is usually a large sum.

This money is then used to help finance the building work necessary for the project. 

Understandably, however, not many of us would feel comfortable simply transferring that amount of money to a builder – especially when no bricks and mortar have actually been laid. There are obviously huge risks attached to doing that, such as the building company closing, them disappearing or there being a problem with the construction of the property. All of which could result in you losing a huge amount of money.

Unless you’ve gone down the legal (and recommended) path of a bank guarantee.

What Is A Bank Guarantee In Spain?

Before 1968, there were no legal requirements for developers to safeguard buyers’ money. As you might imagine, there are some truly awful stories of people believing they were in the process of buying a newly built Spanish property, for it all to come crashing down around them (not literally, we hope). 

After 1968, however, Law 57/68 was introduced. This law now makes it a legal requirement for developers to offer a bank guarantee which helps to keep purchasers’ money safe.

A builder or developer who is going to receive a deposit and regular payments towards the construction of the property will have to ensure the following two things:

1 That they set up a specific bank account for the payments to be deposited into. This cannot be a personal bank account or one previously held. The money in this bank account can only be used towards the construction of the property.
2 They provide a guarantee to refund the amounts (plus interest) if the property is not finished or not started by the agreed completion date. The guarantee must not have an expiry date, meaning that it must be valid until the property is fully finished and deemed safe to live in.

Bank guarantees in Spain are issued at no cost to the buyer (which is great news for you) but can work out pricey for builders and developers. In fact, it can be so expensive that many try to work around them. If this does come up, we recommend that you do not proceed with the purchase of the off-plan property without a legal bank guarantee. Whilst you may be offered better conditions to begin with, it’s risky and may have devastating consequences down the line. 

Why Is A Bank Guarantee So Important When Buying A New-Build Property In Spain?

You need to think of your bank guarantee a bit like an insurance policy. It’s a really attractive proposal for property buyers in Spain, as it means the builder or developer is required to refund you all the money should they not be able to complete the construction of the property. 

You won’t lose large amounts of money and it massively reduces the risks associated with buying a new home.

So, Are Bank Guarantees A Good Idea?

Absolutely. A bank guarantee takes away the stress and risk associated with buying a not-yet-built property in Spain. Several new-build properties are being planned or under construction in Spain and they’re attractive to many buyers. They’re modern, often more environmentally sound and there’s no need to reform anything before you move in. However, the stress of paying for something you can’t actually see yet is a big negative for many buyers.

A bank guarantee changes this. Buyers can safely deposit their funds in a separate bank account, knowing this money will go towards the construction of the building, and only that. Should it not be finished on time or if anything happens to the building company, your money will be returned to you with interest. And the best bit is that it’s completely free for you! You’ll either be the owner of an amazing, new Spanish property or receive all your money back. Win-win!

Note that this article is general and is shared as information. Property, tax, finance and other legal topics are personal and can vary not only from person to person but between the different regions of Spain. We recommend that you seek professional guidance if you need advice on matters covered in this article.

About the author

Bueno Team

Bueno, we know Spain and how frustrating banking in Spain can be