Is it better to get a mortgage abroad or in the UK to fund an overseas property purchase?
There’s no straightforward answer to this question unfortunately. The truth is it depends on your individual circumstances! Where are you buying a property? How much do you need to borrow? Do you have an existing mortgage?
There are both advantages and disadvantages to borrowing money in the UK to fund a property purchase abroad as opposed to securing an overseas mortgage. So, it’s important to understand the repercussions of each choice before deciding which is right for you. Consulting a mortgage specialist will help you weigh up the options and find out whether obtaining a mortgage abroad or in the UK is the right choice.
There are a number of things to bear in mind when considering a loan for a property abroad. First and foremost, you need to know how much you need to borrow and how much you can borrow. This will vary significantly depending on whether you plan to borrow in the UK or the country that you are buying the property.
Don’t assume that loan to value ratios are universal! You may be able to secure a mortgage in the UK with as little as five per cent cash deposit. However, for mortgages in France and Portugal you’ll need a minimum of 20 per cent, while for a mortgage in Spain a 30 per cent deposit is required and for an Italian mortgage you should budget for a 40 per cent cash deposit. And don’t forget that you need to budget for cash for additional fees – including purchase taxes, lawyer’s fees, notary fees and land registry – on top of that. But remember that property prices are often much lower!
On the plus side, while deposits tend to be higher abroad you may find that interest rates are more competitive. So, you should carefully weigh up the short-term and long-term financial implications. It’s worth noting that interest rates can fluctuate, so if you intend to pay your mortgage in Euros from a bank account held in Pounds Sterling your mortgage payments could vary from month-to-month. Using a currency exchange specialist can help minimise this though.
You may find that it’s more difficult to secure credit overseas, as unless you’ve already lived there you won’t have as strong a credit rating as you do in the UK. While you can use a copy of your credit report in the UK to help substantiate your application, a credit score is not recognised internationally due to data protection laws. Therefore, you may find it easier to obtain a mortgage in the UK.
If you already own property in the UK it may be beneficial to consider remortgaging your property to release equity to fund your property purchase abroad. That way you can avoid the issues involved with currency and interest rate fluctuation. Plus, cash-buyers abroad are in a strong position to negotiate!
In the UK the Financial Ombudsman and Financial Conduct Authority offer protection to individuals against mortgage businesses operating in the UK. In many other countries, however, mortgage advisers are unregulated so you should ensure that you seek reputable mortgage advice before entering into a contract.
If you wish to obtain more information about mortgages to finance a property purchase in Spain, Italy, Portugal or France please contact Total Buying Abroad on 01244 478 911 or email firstname.lastname@example.org and we will be happy to assist. We can also recommend reputable mortgage advisors who can provide more information about your mortgage options and can assist you with securing a mortgage in Spain, France, Italy or Portugal.
Article published: May 17, 2018