AIPP • CHOOSING THE RIGHT MORTGAGE
CHOOSING THE RIGHT MORTGAGE
loans were available on the purchase of a foreign property, nowadays 60-70% loan-to-value (LTV) is the norm. The result is you will be required to fi nd the balance of 30-40% to fund the purchase. Also, since the fi nancial crisis, borrowing criteria has become more stringent generally. Self-certifi cation largely no longer exists, and the self-employed will fi nd it trickier to obtain a mortgage, especially when their latest accounts are not readily available.
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The main options to fi nance a purchase of an overseas property are: • Obtain a mortgage directly from a large UK or international bank, which offer loans in a number of currencies and may also have affi liate branches overseas;
• Use a specialist overseas mortgage broker; • Borrow directly from a local overseas bank in the local currency (although many now have branches in the UK);
• Raise a new mortgage against equity in your UK property to buy overseas entirely or use the released cash as a downpayment. Be cautious here, as depending on how much you borrow, if house prices fall in the UK you could end up in negative equity.
The currency you decide to borrow in is likely to have a bearing on which of the above routes you choose. It is critical to get this right, especially as currency exchange rates are so volatile. For example, if you intend to let your property in euros, you should be making your mortgage repayments in euros to avoid having to transfer money. But it may also make fi nancial sense to make mortgage repayments in the same currency as your salary, usually sterling if you live in the UK. To decide which is best, you’ll need to assess which is your priority, and which will cost you more in the short- and long-term. In most cases, you’d
n the wake of the 2007 global fi nancial crisis, banks worldwide have become more cautious about mortgage loan ratios. Where once 90%
be wise to seek the advice of an independent fi nancial adviser. However you choose to raise a loan to buy a property
abroad, don’t over-stretch yourself fi nancially, and be realistic about how your mortgage repayments abroad could affect your overall outgoings in the UK. Always keep a little bit of money in reserve, for those unexpected months when things are a little tight, or your rental income dries up. Lastly, bear in mind, that fi nance availability and criteria is subject to change. If you are relying on mortgage fi nance to fund your purchase overseas, it is wise to explore the options at an early stage and seek up-to-date, specialist fi nancial advice about the options available.
Top Tips
• Consider how you will fund your purchase from the outset. Seek specialist advice, and don’t commit to a purchase without being sure of how you will finance it
• Exchange rates can affect the affordability of your mortgage repayments if borrowing in a foreign currency. If you intend to let out your property, it’s sensible to charge rent in the same currency as your mortgage
• Take extra care when buying off-plan. Your property may be 18 months away from completion, by which time lending criteria and availability of finance may have changed. Check whether the mortgage forms part of the purchase agreement
AIPP CONSUMER GUIDE 23
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