Protect Your Money When Buying New-Build Property in Spain: Bank Guarantees Explained

Buying a new-build property in Spain can be an exciting investment—but it’s crucial to understand how to protect your money throughout the process. In this Expert Talks episode, Kian sits down with leading real estate lawyer Luis Carbajo of Martínez Echevarría to explain how bank guarantees work, why they matter, and how they safeguard your deposit.

What Is a Bank Guarantee?

A bank guarantee (or insurance-backed guarantee) is a legal mechanism that protects your down payment when buying off-plan. It ensures that your money is returned if the developer fails to deliver the property—whether due to delay, bankruptcy, or breach of contract.

The “Lack of Confidence Triangle”

Luis introduces the Lack of Confidence Triangle: a system of checks and balances between the buyer, the developer, and the financial guarantor (bank or insurance company). Here’s how it works:

• Your deposit goes into a special bank account, only accessible under strict conditions.

• The bank or insurer issues a guarantee covering your full deposit (including VAT and legal interest).

• This system prevents developers from misusing funds and offers peace of mind to buyers.

Key Takeaways from the Interview

• Validity: Guarantees are valid from the moment the building permit is granted.

• Coverage: Your full deposit plus VAT and accrued interest is covered.

• Enforcement: If the developer defaults, you can enforce the guarantee (known as execution) and get your money back.

• Types: There are standard guarantees (which may require legal action to enforce) and at-first-request guarantees, which are more protective but less common.

• Costs: The developer is legally responsible for covering the cost of issuing the guarantee.

• Red Flags: Always confirm that the bank or insurer is authorized in Spain. Avoid “cowboy” insurers that aren’t listed by Spain’s insurance authority.

Self-Build Projects: A Different Risk

Unlike buying from a developer, self-promotion projects (autopromoción) mean you are the developer. These do not come with guarantees and carry higher risk. Buyers are responsible for the land, construction, and legal process—so due diligence is vital.

Conclusión

If you’re buying off-plan in Spain, understanding bank guarantees is non-negotiable. It’s your safety net in case things go wrong. Work with a reputable lawyer, verify all paperwork, and make sure your investment is protected before signing anything.

Thinking of buying off-plan in Spain? Get in touch with Hi Homes or legal experts like Luis Carbajo to ensure a secure process from day one.