MORTGAGES K
ey to buying abroad with a mortgage is being realistic about what you can afford today and taking steps to ensure you don’t leave yourself
fi nancially exposed in the future. Before you make any decisions, it’s a good idea to talk through your options with an IFA and/or specialist overseas mortgage broker. A good way to give yourself an advantage prior to searching for a property is to get an agreement in principle from a mortgage provider – this will show agents and vendors that you are a serious buyer and can move fast to complete a sale. As a general rule, when choosing your mortgage
always borrow in the same currency as the source of funds you plan to use to cover the repayments. So, if that’s your UK salary, your mortgage should be in Sterling, but if you plan to let your property locally in, for example Spain, you’d be better off with a Euro mortgage. It is likely your chosen lender will require proof of deposit from you, including how the funds were accumulated (eg by savings, inheritance or sale of another property). These days, banks have strict affordability criteria and will assess your mortgage options on a repayment basis, even if interest only is available. For private resale purchases, banks in most European countries will typically offer foreign buyers a loan to value (LTV) of up to 70 per cent (of whichever is the lower of either the purchase price or bank’s valuation). There are exceptions and fi nance options do vary according to the condition of a country’s property market.
In France, the LTV available is generally higher than other destinations, thanks to French banks’ under-exposure to the sub-prime crisis and history of controlled lending. If you are attracted by one of the attractive introductory rates currently offered by French banks be sure to check the rate your mortgage would switch to once the introductory period is over – the cost of changing mortgage provider is much higher in France than in the UK (around 2.5 per cent of the mortgage value), hence most French people never switch lenders. In Spain, 100 per cent mortgages are available but only from banks that are offering fi nance against properties on developments they have repossessed and are keen to offl oad – so the mortgage will be applicable to a specifi c development. Meanwhile, lenders in the US are typically offering foreign buyers adjustable rate mortgages (ARMs) rather than fi xed rate, and deposit requirements are usually 30 per cent. Low bank valuations can also be an issue when securing a mortgage in the US. To protect yourself against this, it is advisable to add a contingency clause into your contract which gives you the right to pull out of a deal and reclaim your deposit if the bank values the property lower than the agreed sale price.
Options for financing an overseas property
Ë Use a specialist overseas mortgage broker - these deal with a number of different banks and typically charge a one per cent arrangement fee
Ë Borrow from an overseas bank in the country in which you are buying and in the local currency
Ë Borrow from a large UK or international bank that offers mortgages in a selection of currencies and may also have affiliated branches overseas
Ë If buying a repossessed property, borrow from the bank that owns the property, often a 100 per cent LTV
Ë Re-mortgage your UK home to raise equity, which can be used to buy a property outright or as a deposit combined with one of the above
AIPP CONSUMER GUIDE 29
SECTION 3 ESSENTIAL SERVICES
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