Pay back your family, not the Spanish banks!

(Or how borrowing from Grandma can boost your real estate project in Spain)

What if your next mortgage wasn't with a bank... but with your own grandfather?

The (brilliant) idea in a nutshell

When you borrow money from a relative (parents, grandparents...), you create a real debt, with a loan contract in due form. And this debt is recognized as such by the Spanish authorities.

➡️ Translation: for Spain, you have financed your purchase via a loan, with interest payable, as if it were a bank.

Why is it clever?

• In Spain, interest is deductible from property income. So your SCI (or you, if you buy direct) pays less tax.
• The person lending you the money earns interest, without necessarily being taxed on it. For example, a grandfather living in Luxembourg will pay nothing. It's legal, simple... and profitable.
• No bank paperwork, no deposit, no hassle. Just a well-written IOU.

"Pay back your family, not the Spanish banks!" - It's not just a slogan, it's a real lever for tax optimization.

Concrete example

You borrow €100,000 from your grandfather, at 2% annual interest.
Result:

• You deduct €2,000 a year from your taxable rental income in Spain.
• Grandpa earns €2,000 at ease, in annuity mode.
• You keep control of your project, without diluting your shares or bringing in new partners.

Must be done

• Draw up a written, dated and signed loan contract, with fixed interest and repayment schedule.
• Register it (optional but recommended).
• Keep rigorous accounts in your SCI or acquisition structure.
• And of course, respect the tax rules of the lender's country of residence.

The last word

This set-up is neither a hacker's trick nor a dubious gimmick. It's intelligent transmission, strategic taxation, and a good excuse to have a coffee with Grandpa while talking real estate.

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FAQ : Borrowing from family to buy real estate

Do you know anyone who has ever borrowed from their parents or grandparents to invest in real estate?

The answer is a resounding YES! One of our customers, whom we'll call Robert (modified for the occasion, but keeping the "Ro" in his first name) has already done this... and not just once. There's something for everyone.

Why would your parents or grandparents agree to lend you money?

Your parents or grandparents generally invest their money very poorly. They invest in euro funds and low-interest life insurance, or let their money sit in current accounts and savings books that pay less than inflation.

How do you convince your parents or grandparents to lend you money?

You're going to have to come up with a real sales pitch, and be as prepared as you would be in front of a real banker. The best way to do this is to present them with a property sheet, i.e. an investment project sheet presenting all the financial elements, the market study and the estimated rental income (with supporting comparables).

What happens if you make a bad investment and can't repay the loan?

If it were a bank, it could seize the property, having the mortgage guarantee. Since the property is held by your parents or grandparents, you run the risk of a family squabble, but not of losing the property. Your grandfather will more easily give you an extension of time to repay it, than your banker would!

Can the loan be structured "in fine" (repayment only at the end)?

No. In Spain (and in most other jurisdictions), a loan between individuals must be amortized gradually, with regular repayments (annual or quarterly). In other words, you have to repay part of the principal each year, not just the interest.

Tax authorities expect a clear amortization schedule, which means that maturities must include both interest and capital. This strengthens the credibility of the contract and avoids any recharacterization (e.g. as a disguised donation).

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Can we set any interest rate?

Nor should you. Even if it is not a bank loan, the interest rate must remain "within the market", i.e. reasonable and justifiable.
In practice, rates between private individuals are capped at around 5 to 6% maximum, depending on the context.
An excessive rate could be rejected by the tax authorities, or even requalified as a partial donation.

💡 Tip: To avoid any problems, base yourself on an interest rate equivalent to that charged by banks on personal loans of the same duration, or use the benchmark interest rates published in the lender's country of residence.

Do I need a lawyer in Spain to draw up or register the family loan contract?

Yes, absolutely.

Although a family loan may seem straightforward (it's "just" money between relatives), it's a real legal act, with tax and accounting consequences. To make sure you're on the right track, we strongly recommend you consult a lawyer. This usually costs less than €500. Contact Delaguía y Luzón on behalf of Terreta, for example, as they have already done this for several of our customers.

Would you rather take out a mortgage with a bank to avoid family problems?

Too bad, I thought family credit was fun. But if you're worried about falling out with the family, then check out our article on mortgages in Spain (with banks, this time).

FAQ — Family Loan for Buying Real Estate in Spain

What is a family home loan?

A family loan is a loan of money made by one family member to another to finance a project, such as the purchase of a property. It works like a traditional loan but is arranged between individuals, without going through a bank.

Can you finance a real estate purchase in Spain with a family loan?

Yes. A family loan can be used to finance all or part of the purchase of a property in Spain. It can replace a bank loan or supplement a down payment.

Why use a family loan to buy a property?

A family loan can help you avoid the red tape associated with banks, reduce financing costs, and secure more flexible terms than those offered by a bank.

Are family loans legal in Spain?

Yes. Loans between family members are permitted in Spain, provided they are properly documented and reported when required by law.

Is it necessary to draw up a contract for a family loan?

Yes. It is strongly recommended that you formalize the loan with a written agreement that specifies the terms of the loan and the obligations of each party.

What should a family loan agreement include?

The contract must generally specify the identities of the parties, the amount borrowed, the term of the loan, the repayment terms, any interest rate, and the consequences of default.

Can a family loan be interest-free?

Yes. A family loan can be granted at a 0% interest rate, provided that this is clearly stated in the contract.

How can you prevent a family loan from being treated as a gift?

To avoid having the transaction reclassified as a gift, it is important to draw up a formal loan agreement and ensure that the principal amount is actually repaid.

Do you have to report a family loan in Spain?

Yes. Even if it is interest-free, a family loan generally must be reported to the tax authorities to avoid being reclassified as a gift.

Are family loans taxable in Spain?

A family loan is generally not taxable if it is properly reported and does not include interest. However, a gift may be subject to specific tax rules.

What is the difference between a family loan and a gift?

A family loan requires repayment of the principal amount borrowed. A gift is a transfer of money with no obligation to repay it.

Can a family loan be used as a down payment on a mortgage?

Yes. Money lent by a family member can be used as a down payment for a mortgage loan from a bank.

Can you finance the entire cost of a real estate purchase with a family loan?

Yes. If a family member has the necessary funds, it is possible to finance the entire real estate purchase with a family loan.

Do you need to go through a notary for a family loan?

It is not mandatory, but it may be advisable to ensure the agreement between the parties is legally binding.

Can a family loan be secured with real estate?

Yes. It is possible to use the financed property as collateral to protect the lender.

What happens if the borrower doesn't repay the family loan?

The consequences depend on the terms of the contract. If the borrower fails to make a payment, the lender may take legal action to recover the amounts owed.

Can the repayment terms be set freely?

Yes. The parties are free to determine the repayment terms: monthly payments, deferred repayment, or a lump-sum payment.

Can a family loan be paid off early?

Yes. The terms for early repayment may be freely specified in the loan agreement.

Can a family loan be used to finance a rental property investment in Spain?

Yes. A family loan can be used to finance a property intended for rental or as a real estate investment.

Why are family loans often used for real estate projects?

A family loan can help a loved one buy a home, increase their down payment, or simplify financing when it’s difficult to obtain a bank loan.