Can you find hotel only in the town you want through BA? Probably not if BA.com doesn't recognise the spelling. If you can't find hotel only then Holidays don't offer hotels in that town and won't be able to package it for you.
I had a look at the Madrid area but there didn't seem to be a way to expand the search to a greater radius.
Calling in to BA won't help as the staff book Holidays in the exact same way we do - online. They access existing bookings in a different way but the booking process is the same.