Preface
With the dramatic and continued increase in property prices in the UK, many people are looking overseas to purchase a home. Other people are also recognising the possibility of buying overseas on a buy-to-let basis. The problem is, it can turn sour once they get into the intricacies of dealing with overseas Solicitors, Banks and Developers. One area that has become more flexible, however, is arranging a mortgage overseas. This article discusses the ways you can take out a mortgage abroad, points out the disadvantages and tells you what the differences are between a foreign mortgage and a UK based one.
European and US Mortgages
You can get a reasonably competitive mortgage in the US and most of the established European overseas property markets like Portugal, Spain, France, Switzerland and Italy. The rule of thumb is, the more established the market, then the easier it is, so in emerging markets like Greece, Bulgaria, Poland and Israel, you can get a mortgage - but the rates will be considerably higher (see below), the amount they will lend is less and they also have stricter borrowing terms. There is also an emerging market in the Caribbean to consider.
There aren't too many major differences between a foreign mortgage and a UK based one, but bear in mind that the risks of buying a property are the same as in the UK. In Europe it is not the norm to see Mortgages offered interest only and it is very rare to see buy-to-let mortgages. They will usually base the amount you can borrow on how much you earn rather than the rental income and also there is not really a market for self-certification mortgages. A much wider range of secured loans is available in the US.
Positives and Pitfalls of a Foreign Mortgage
In the mature property markets like France, Spain and to a lesser extent Portugal the lenders have become much more flexible when dealing with UK buyers. Although things can often change quite dramatically over the period of a mortgage, it is worthwhile noting that Interests rates in the European Community are typically lower than in the UK. The problem is that the low interest rates are starting to attract a lot of buy-to-let investors, who are finding that the UK market has begun to mature.
If you do plan to let the property out the income can be offset against the loan for tax purposes. Check out the tax rules in the country you are proposing to buy in, but some have very expensive wealth charges payable on equity. Borrowing the money to make the purchase rather than buying outright could mean you avoid this tax. As with all these types of financial transactions, it is probably prudent to speak to an Accountant or tax advisor.
One of the disadvantages of taking out a foreign mortgage is that, as it is in another currency, it adds another layer of risk. If, for example, the Euro goes up - it will cost you more to buy the currency using your sterling. You can however minimise this risk by using services provided by currency specialists and banks to fix the exchange rate for a set period and manage monthly transfers.
Getting Off the Ground with a Foreign Mortgage
In each country the local lenders are increasingly catering for UK buyers and some UK based banks will also offer mortgages on overseas property. For example, The Halifax will provide mortgages on properties in Spain and Barclays will lend on properties in most of the mature European countries like France and Spain and Italy.
You can use a UK based mortgage broker to research overseas mortgages. Brokers like Conti specialise in overseas property buying, whilst other brokers, like Savills, advise on mortgages in different markets. Barclays Bank, noticing a growth in the market, also launched an on-line service that gives tips for people looking to buy abroad.
Although you might prefer to deal with someone UK based you can also use an overseas broker to arrange a mortgage. Otherwise you can go directly to a lender. This is probably easiest if you are using a UK bank but bear in mind that some overseas lenders have a UK presence. Several French organisations have recently opened London branches to target people looking to buy their properties and Piraeus of Greece has also launched a service for British based buyers.
There is the obviously the language advantage of dealing with a UK lender and you might be tempted to go for one with a familiar name. If our looking for an interest only mortgage you will probably need to go for a UK based bank, or at the very least one with strong UK ties. For example, several large European banks have connections to the Royal Bank of Scotland and Barclays.
Most brokers recommend talking to local lenders, as many offer the cheapest deals and offer the widest range of fixed and variable rates. Also lenders in the popular European property markets will nearly always employ an English speaking team - so language shouldn't really be a barrier.
You will almost certainly have to check out the rules in the country you are going to buy, but a local lender could be bet if you are going for a specialist scheme like a France based sale and leaseback.
Conclusion
As mentioned before, the rates can be lower than in the UK, for example in France, Spain, Italy and Portugal the rates can start as low as 3.5%. In the less established markets like Bulgaria and other eastern European countries the rates can start at around 6%, whereas countries like Greece and Cyprus roughly fall half way between the two at 5%. The borrowing criteria are typically tougher than in the UK and you should expect to be able to borrow only around 70-80% of the property's value.
The documentation you need is proof of income and you usually have to prove you can meet mortgage repayments through your own earning rather than rental income.
Giles has worked in the Finance sector for many years. Around 10 years ago he set himself up as an Independent Consultant and is currently working for the secured loans introducers We Introduce You. Giles is also helping the organisation with their secured loans blog which provides information about the secured loans industry. |
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