Valencia Property Blog

With rental prices through the roof and purchase prices reaching their highest levels yet seen it's very difficult for young people to get on the property ladder in Spain. In other countries mortgages of up to 100% are available meaning that people have more of a chance of buying without having to save the lump sum required, not to mention the costs involved in purchasing. (You can read about what you need to save in this post from last month) However, if you are in a position to help out your children then there are various ways you can help them get their own place. Let's take a look at five possible ways to help your child get a property.

Donate a House

Sounds good for those that can right? However, you need to be aware that you may have to pay a lot of tax on this donation for various reasons. These include if the house has increased in value since you bought it, if it is not a habitual place of residence or if the person donating the property is not over 65. Also you cannot just donate to anyone without consequence. To your children it's fine, but nephews, nieces, bloke you met in a pub that seemed nice to start with but now you're a member of their cult etc... no. There will be tax implications in that.

Economic Help

Give your kids some money to help them pay the costs and maybe the 20% they need of the price while they get an 80% mortgage? Yes you can do that and in many places in Spain you won't pay any tax on that donation. However it's best to check first as it will depend on the amount and the relationship between the parties. Parents to kids is usually fine, grandparents to kids, uncles and aunts to nephews and nieces not so much. Always get tax advice on the correct way to donate money as you will still have to declare the gift in the tax declaration the following year even when no tax is due.

Personal Loan Between Parties

This is the best known method of helping kids out. Personal loans from parents to children can be made at 0% interest rates and don't attract any tax implications. However you have to make sure that the loan is written out in the right way, that the conditions are stipulated and that the money is actually paid each month or at the agreed time periods otherwise the tax office may (WILL) consider it a donation or gift and charge tax appropriately. Equally the loan must be registered at the Prop in Valencia to show that irt is a genuine loan and not just an undercover, tax avoiding gift.

Bare Title and Usufruct

Yeah I didn't know that word in English either. I did know it in Spanish though as it's quite common here. In this case the parent buys the Bare Title (Nuda Propiedad) of the property and gives the child the Usufruct (Usofructo: The right to use the property and live in it) The property still belongs to the parent in this case but their child or children have the right to use it.

There are potential issues with this though as the child can rent or sell their right to live in the property and the parent can sell the Bare Title, perhaps if there is a family argument or disagreement for example. However this is a common way to buy if you have children and want them out of the house and it gives the possibility in the future for the child to buy the Bare Title when their economic circumstances allow it and the bank feels that they can give a mortgage to them.

And here's an interesting thing about what happens if you decide to buy with your child in this way, a joint purchase with the parent getting the bare title and the child getting the usufruct, the rule of 89! The rule of 89 means that the child pays 89% of the value of the property to buy the usufruct minus their age. So for example if the property is bought in joint names when the child is 40 then it's 89-40=49% of the value of the property to buy the usufruct and the parent will get the bare title for 51% of the value. (There you go. You learn something new every day). Remember though the child can sell this usufruct to someone and the parent can sell their bare title and this can create major problems down the line.

Bank Guarantee

The riskiest way of doing it is by giving a bank guarantee to the child when they are looking for a mortgage. At times the bank may demand a guarantor when the child asks for a mortgage as they may not have sufficient guarantees from the child through their working contract, their income or their deposit. Parents often provide this guarantee. It's very risky though to do this as all of the assets of the parents guarantee the loan and if the mortgage is not paid the bank can not only repossess the mortgaged property but also any assets owned by the parents including their own property.

How Should You Help Your Children?

Well, if you can help then you have options but make sure to talk with a lawyer and a tax advisor about the best method of lending your kids a helping hand beforehand. The loan route is often the best way but it can cause bad blood in a relationship if the repayments aren't made for example.

A bad decision on how to lend or donate money to your kids or other relatives can cost a lot of money taxwise or even the loss of a home when acting as a guarantor. And make sure everything is written down because however good your relationship with your child when helping them, things can, and often will, change.

Our Latest Podcast

We brought out our latest podcast in the middle of last week and it's the last one of 2024. In it we talk about the scam we mentioned last week, the state of the market at the end of 2024, perspectives for 2025 and a whole lot more including the reasons why you most likely will not find any property under 200k in Valencia and why we won't be selling them. Have a listen.

Villa of the Week

A perfect house here for a family in San Antonio de Benageber, between L'Eliana and La Cañada. Convenient to the many international schools in the area, easy to get out to the motorway for the short drive to the city, and well served by public transport, with an excellent bus service to the city.

This house is one of those places that if the decor puts you off then it mightn't be for you. Very much influenced by country homes, we have exposed wooden beams, terracotta tiles, open fireplace and a picture of Mary and the little baby Jesus. Even the back yard has arches and brickwork more reminiscent of a masia than an urbanization.

4 bedrooms upstairs with the potential for a fifth downstairs. The kitchen leads directly to the back terrace looking out on the pool. Its not a huge plot, but as a result very manageable. Despite the rustic look, the house was built in the 2000's, so has climalit windows, water softener, air conditioning of course, and has been preinstalled for central heating.

So as I said, a great family home in a nice neighborhood, enough space to spread out, but still easily maintained. Get in touch if you think it could be your family home.