Mortgages for overseas properties
Buying property overseas is bound to be a little more daunting than purchasing in the UK. You probably won’t be familiar with how the local property market works, or be on the spot to monitor the market, or your purchase, from up-close. Nevertheless, if you do your homework and take good advice, you’ll get there. And overseas property can be an excellent purchase – as a bolthole for you and your family, as an investment, or as a combination of the two.
The mortgage options
The simplest option by far, assuming you have sufficient equity in the property, is to remortgage your home in the UK. You can then use the cash to buy your overseas property outright. Remember, however, that your home will be at risk if you can’t keep up with the mortgage repayments.
Alternatively, there are UK lenders which offer mortgages on overseas properties, but the choice is relatively limited. Typically, only the largest lenders are likely to lend against overseas properties and then only in countries where they have subsidiaries.
Traps to avoid
Interest rates on overseas mortgages often turn out to be lower than in the UK, but there are other costs to consider. You’ll need to plan for brokers’ fees and legal costs, for example, as well as any taxes payable in the country in which you’re buying. These may be much higher than in the UK.
Think carefully about what currency you borrow in. If you’re intending to pay the mortgage from your UK income, it makes sense to stick to a Sterling-denominated loan or there’s a danger that future movements in the currency markets might make the repayments much more expensive. Equally, if you intend to rent the property out locally, arranging the mortgage in the local currency may make more sense.
Make sure you understand what the local property system requires. Often you’ll be required to pay much larger deposits on properties than in the UK and this money may not be refundable. Make sure you have good local legal advice and that you read and understand all the documentation. Always get translations of such documents.
Arranging your mortgage in advance makes a great deal of sense, as it will give you a good idea of how much you can spend in the country of your choice. Bear in mind that lending criteria in some countries may be much more restrictive than in the UK.