Any realty (land, buildings, houses etc) is governed by Spanish law and you should make a Will in accordance with Spanish law to dictate what happens to it. Anything else is governed by any English will you happen to have made; realty is passed under the law of the country in which it lies, under the principles of Comparative Laws, regardless of what any Will made under some other country's law says.Thus my father's property in France did not pass under his English Will but under French law of intestacy, he having made no French will. I am not presently aware of any EU laws, protocols, or conventions which alter this.
As to a letter of wishes, it doesn't have any more standing in English law than any other statement. To have legal effect on death it must be expressed in formal terms in an English will, drawn, signed, and witnessed in accordance with English law. Now, I am not familiar with the Spanish law on wills. It may be that such a document as you describe would have effect under the law there, though it doesn't seeem likely at first blush. I would think that Spanish law provides that such an important matter as guardianship of minors on the death of parents would require a declaration in a Will, but I am not able to give a definitive answer, and you should ask a Spanish lawyer.