Getting a mortgage in Italy
If you’re considering buying property in Italy it’s also worth thinking about whether to buy in cash (if you have the funds at your disposal) or whether to get a mortgage (Mutuo Ipotecario) in Italy. Of course, getting in mortgage in a foreign country can feel a little daunting. However, buying a property in Italy with a mortgage instead of using your savings could be much more financially beneficial if you get a good deal.
Unless you’re fluent in Italian, it’s advisable to use a mortgage broker who understands the mortgage system in Italy as most banks in Italy do not have fluent English-speakers. Plus, a good Italian mortgage broker can help guide you through the process, making it is as simple as possible and taking the stress out if, as let’s face it we all know mortgage applications can be a bit of a headache!
What are the benefits of getting a mortgage in Italy?
Borrowing in Italy is very cheap at the moment, with interest rates currently at their lowest for many years. So, compared to releasing equity in a property in the UK, for example, borrowing in Italy can be more cost-effective.
Securing a mortgage in Italy can make for a great investment at the moment and by getting a mortgage, as opposed to using your savings, it also allows you to leverage your liquidity to invest elsewhere and therefore mitigate the risk!
What is the lending criteria for a mortgage in Italy?
When applying for a mortgage in Italy, lenders use what is known as a debt-to-income calculation (or debt burden ration) to assess your affordability, which can vary from lender to lender. Usually a mortgage lender will want to ensure that your existing liabilities do not exceed 30-35 per cent of your income.
This affordability assessment takes into consideration any loans/finance, such as car loans, credit cards, store cards etc, mandatory maintenance payments, other mortgages and/or rental agreements, versus your income.
The applicant(s) has a monthly income of £3,000 after tax…
They have a mortgage of £450 per month in another country…
Plus, a minimum monthly credit card payment of £50 per month…
The proposed cost of the mortgage in Italy is £400 per month.
So, their debt equates to £900 per month, which is within the minimum 30 per cent ratio of the monthly income.
Ultimately, the interest rate offered will depend on a number of factors, including the loan to value, amount borrowed, as well as your overall personal financial profile.
What is the maximum Loan to Value for Italian mortgages?
The maximum loan to value (LTV) offered by mortgage lenders in Italy is 60 per cent of the purchase price. Most banks in Italy offer a maximum term of 20 years for non-residents. Typically, Italian lenders will offer a mortgage up to the age of 80, therefore if you require a 20-year mortgage you must apply by the age of 60.
The minimum value that most banks in Italy will lend is €50,000 although this can be higher for some banks (up to €70,000)
What fees are involved when getting a mortgage in Italy?
Typically, most mortgage lenders in Italy charge between 1-1.5 per cent of the loan amount plus VAT for the arrangement fee.
It is standard practice to carry out carry out a valuation of the property in Italy, which can vary from €250-€300 plus VAT, depending on the lender.
If you’re using a mortgage broker you will also need to factor in their fees, which will vary depending on the amount borrowed and whether the lender pays a procurement fee to the mortgage broker. As a rough guide you should budget approximately 0.5-1.5 per cent of the value borrowed upon approval of the mortgage. Some brokers may also charge an initial upfront fee.
A Mortgage Tax (Imposta Ipotecaria) is also applicable, which is usually between €50-€200.
Overall, you should budget between 10-12 per cent for government fees, taxes and legal costs for your property purchase in Italy.
What is the process when applying for a mortgage in Italy?
As starting point, it’s advisable to seek the advice of a mortgage broker who has a good understanding of the mortgage system in Italy. They can offer an initial assessment to ascertain whether it’s likely you’ll be approved for an Italian mortgage, and, if so, under what circumstances. You’re not under any obligation to continue with their services, however, their service is often invaluable in what can be a complex and lengthy process.
The process for obtaining a mortgage in Italy will vary from one lender to another. However, for guidance purposes the following steps (there may more or less, depending on your financial profile, sources of income, what other debt you hold and how all this can be substantiated) usually need to be undertaken following this assessment:
- Mortgage quote – a full mortgage quote is usually offered within 24-48 hours.
- Sign up – if you decide to accept the mortgage offer and wish to proceed your mortgage broker (if you are using one) will ask you to be sign the terms and conditions and make payment with regards to their initial fee.
- Documentation – along with the completed mortgage application form, you will need to submit all the necessary supporting documents. If you use a mortgage broker, they will help you fill in the application form and offer guidance on the supporting documentation.
- Mortgage offer – after all the relevant paperwork has been received and processed you will receive a formal mortgage offer, which is usually valid for three months.
- Valuation report – at this stage the bank will require an official valuation of the property. Providing that the valuation is not lower than the agreed purchase price and there are no legal issues relating to the property, you can proceed to making arrangement of the property purchase.
- Finances – you must ensure that all the funds for the property purchase (including the deposit, property taxes, notary fees etc) are available and transferred to the appropriate account ahead of the completion date. The mortgage lender will then proceed with the mortgage application and a date for completion can be arranged.
- Completion – the Italian mortgage lender will arrange a date to sign the property and mortgage deeds in front of the Italian Notary (Notaio), at which point payment of the deposit, property taxes and any other fees will also be made. You/your lawyer will then need to register the property in your name, and you are then officially the new owner!
Before the payment of any funds is required i.e. reservation fees, valuations reports etc, you will also need to obtain your Italian fiscal number (Codice Fiscale) and set up a bank account in order to get a mortgage and buy a property in Italy, which your Italian lawyer can assist with.
It normally takes between two to three months for the whole mortgage process to be completed.
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What documents will you need to provide when applying for a mortgage in Italy?
There are a number of documents that you will need to provide, when applying for a mortgage in Italy. Depending on the lender this can vary, but typically the following documents are usually required:
- Copies of your passport (of all borrowers)
- Italian Tax Number (Codice Fiscale)
- Proof of income(last three month’s payslips and a letter from your employer)
- If self-employed, your last three year’s audited financials and last three year’s tax returns
- Your last three months bank statements for all accounts held
- Proof of available funds for your contribution towards the property purchase, including funds for fees associated with the mortgage
- Statements of any assets
- Statements for any outstanding loans including three month’s credit card statements
- Rental agreements for any property owner
- Preliminary sales agreement (Contratto Preliminare de Vendita)
Providing the most up-to-date documents at once is crucial to avoid any delays in the process. Depending on the lender, there are varying levels of risk assessment and all affordability checks are on a case-by-case basis. Some lenders will require more documentation, some will require less!
Mortgage approvals are also usually subject to proof of building insurance and life insurance is also often a common mortgage condition for foreigners buying property in Italy.
Top tip: Highlight all debit instructions and standing orders on your bank statements to make your monthly outgoings clear.
What types of mortgages are available in Italy?
In Italy the vast majority of mortgages are variable rate, however, fixed rates mortgages are available too, but these tend to incur higher interest rates.
Interest only mortgages are not available and there’s no such thing as a ‘buy-to-let’ mortgage in Italy, as banks will not consider potential rental income. This means that you cannot factor in any potential rental income into your debt-to-income calculation, therefore you may not be able to borrow as much as anticipated. However, it also means that the lender does not impose any restrictions in terms of renting a property either, though you should get your lawyer to check whether there are any local licenses/permissions required to rent out the Italian property before committing to a property purchase.
In Italy you are able to make overpayments or settle part of your mortgage without incurring any additional charges as charging a penalty fee is strictly prohibited by the law.
If you need assistance obtaining a mortgage in Italy call our team today on 01244 478911 or email us on email@example.com to find out more.
Article published: September 6, 2018