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Overseas mortgages
It is essential to understand there are very considerable differences between overseas mortgages and the traditional raising of finance on UK properties in both outright purchase and re-mortgaging purposes.
When arranging an overseas mortgage there are many potential pitfalls which can leave you at risk if you have not taken appropriate advice and guidance from professional experts with local knowledge of the legal requirements needed to make your purchase run smoothly in the country you have chosen to take up residence.
The current buoyant overseas market suggest that being more prudent is sensible to ensure you have a full decision in principle to avoid disappointment and also provide you with a stronger bargaining position.
What is a decision in principle?
A decision in principle is where you the borrower provides a detailed account of your financial requirements together with details of your income and any previous financial problems you may have had in the past. Financial problems may exclude lending from certain companies.
In order to meet the different lending criteria of the countries covered financial institutions will ask you to provide us with extremely detailed information including your financial situation.
Once all this information has been analysed an underwriter will either agree to your full requirements or provide you with details of the maximum mortgage advance available together with their best rates.
If you are looking to create an international property portfolio or snapping up that dream overseas holiday house?
The following points are designed to guide you through the major points when buying your foreign home.
How can I find a home abroad?
Most people visit a country maybe for the first time and fall in love and spot something while they are on holiday. Ann alternative would be to find magazines that list foreign properties for sale, including Homes Overseas, Foreign Property News and Exchange & Mart or browse the Internet as many sites today offer a detailed list of properties in various countries.
How do I raise the money?
If you have the funds available and can buy with cash, do it. You will own the property outright without increasing your mortgage debt. This will mean fewer bills on your new place.
If you don't have the cash, there are two ways to pay for a foreign home. You can extend your main mortgage, or you can get a new mortgage for the property.
Extending your mortgage is presently a cheap way of raising cash you need, but you may not be able to get a remortgage for more than 80% of the property's price.
You must remember that you risk losing both homes if you cannot keep up payments.
The other option is to take out a second mortgage on your holiday home.
Several companies offer mortgages overseas. Some of Britain’s well known high street providers such as Abbey National, Norwich & Peterborough and Barclays including run an overseas property service, which offer mortgages on properties overseas. An alternative to approaching a lender direct would be to conduct your proposition through a specialist overseas mortgage broker many of which advertise on the Internet.
Can I get a mortgage in the local currency?
Yes, but you need to be aware of all the risks. Taking out a foreign currency mortgage could be dangerous. The pound can move against the euro - if it weakens, your payments will increase.
Properties generally have risen in price in (2003) as the pound has weakened against the euro.
On the other hand if you are buying property in another country your home will be valued in that currency so it could make more sense to borrow mortgage in that currency. The drawback with many mortgages is that you have to be paid in euros to be eligible for a mortgage.
How long will it take to complete?
It depends on the country you are buying in. Buy property in France and it could take up to 20 weeks to complete the transaction. In Spain, Italy, Greece and Portugal it will average between 12 to 18 weeks. Be aware the longer it takes to complete the transaction the more at risk you are from rate fluctuations, which could add thousands to the real cost of the property in the time it takes to complete.
Is there anything I can do to protect myself against currency swings?
Yes. One option is to arrange what is called a spot transaction. Basically an instant transaction, it allows you (the buyer) to transfer funds 'on the spot' to the agent or vendor abroad, in line with the exchange rate at that time.
You could also arrange a forward transaction. This is when you agree to fix the exchange rate at the current level for an agreed completion date up to 12 months in the future.
I want to go ahead, but I don't speak the language.
You will need a reputable solicitor and valuer who are local. Ask you bank or mortgage lender, they should be able to help you find these professionals who also speak English. The Federation of Overseas Property Developers, Agents and Consultants have a list of lawyers who specialise in buying abroad. Beware that in some countries lawyers act for you and the seller, so make sure you're getting independent advice. Talk to a British lawyer before you sign anything, and remember, you often cannot pull out of an agreed offer as you can in England and Wales.
How much will buying my place cost?
Probably more than you thought. Britain has some of the cheapest home buying costs in Europe.
For example, French legal fees are high - ranging between 10% and 18% of the house price.
There is also a regional tax and an occupancy tax if you live there more than eight months a year.
In Spain, valuation costs £100, and loans must be signed by the public notary.
This costs £580 on a £45,000 mortgage. Taxes and legal fees will normally amount to at least 10% of the property value.
What about the day-to-day running of my home?
The buying process is the not the end of the expense. Check carefully what local taxes you must pay, and be aware that in many blocks of flats you have to pay a service charge.
You'll need to open a local bank account, as services such as water and electricity may only connect you if you sign a direct debit. Local bills must be paid in local currency - this costs money to buy and in some cases foreign banks charge extra for transactions.
Are there tax implications for my second home?
Yes.
If you rent out your property abroad income will have to be declared to the British taxman. Check out the tax laws of the country you're buying in.
There may be implications if you rent or sell the house. Many countries have reciprocal tax agreements with the UK so that you don't end up paying tax twice.
You also need to make a will, as local inheritance tax laws may also come into play.
For example, in France and Italy a property cannot be passed solely to a spouse, but must be shared among any children.
How do I insure my home?
Holiday Homes (Overseas) specialise in insuring homes abroad; this way you can bypass local insurers. Otherwise, ask your own home insurer if they offer a deal to insure a property abroad.
Any other pitfalls?
Plenty. Don't get carried away with the holiday atmosphere and think very carefully before committing. Most homes look nice in the warmth and sun. Make a return trip out of season to make sure you still like it and there's the same level of local services - many resorts close up for the winter.
If you're buying a ski chalet, check what happens once the ski season ends. Then ask yourself these questions:
• If you buy somewhere that needs renovation; do you really want to spend your holidays doing DIY or negotiating with local builders?
• If something goes wrong, can you drop everything and go and sort it out?
• More importantly, do you really want to go to the same place every year?
• Can you afford the travel expense to get to your holiday home?
But presumably all the effort is worth it as my home is rising in value…
Not necessarily.
Britons have a peculiar obsession with property prices, and expect them to rise above inflation over the years.
But this is not true if you buy abroad. You might find your holiday home will not rise in value and could be difficult to sell.
It may make more financial sense to rent.
If we have not put you off and you still want to find out more then visit our list of sites that will give you the information you require to make it all happen.
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