Guide To Overseas Mortgages

What are the advantages of taking out a mortgage overseas?

As well as the cut-price properties that have been available on the continent since the economic downturn took hold (though European house prices are now generally on their way back up again), foreign lenders in places like Spain, Italy and France are becoming more flexible. It’s all part of the plan to get more people to invest, and makes life a whole lot easier for UK buyers. With low interest rates in the Eurozone – sometimes lower than you’d get in the UK – that also works in buyers’ favour.

What are the disadvantages?

As with any international purchase, there is a degree of risk in terms of the exchange rates. If you agree a price for a property, but don’t need to pay for a while, you could find you’re out of pocket if, for example, sterling weakens when it’s time to make the payment.

Then, of course, there is the language barrier. If you don’t have an adviser who’ll be able to answer all your questions and who can help you through the process, this could mean you miss things. Make sure everything you sign is written in English and that you can understand it.

Who offers overseas mortgages?

While there used to be plenty of lenders willing to lend to overseas borrowers, that number has dwindled somewhat in recent times. Since the property market crashed in the last decade – with sterling taking a nosedive in the process, and with those that owned properties overseas seeing a massive increase in their foreign currency debt – fewer leading private banks have been willing to offer mortgages in foreign currencies. That said, there are still those that do – brokers like Alexander Hall and SPF, for example, and a number of UK banks which also operate abroad.

How can I arrange an overseas mortgage?

First of all, you should get your finances in order, so you know what you’ve got and what you can afford. Then, when it comes to getting the mortgage sorted, this is one area where you don’t need to worry too much. Just get a mortgage broker to work on your behalf to find the best deal. If you prefer, you can go directly to a lender.

How much will I have to put down as a deposit?

Whereas in the UK, we’re used to putting down 10% – sometimes as little as 5% – for the deposit, you can find you need a bit more when you buy overseas – generally around the 20-30% mark, with the lender providing 70-80%.

What are the other costs involved?

This will depend on where you’re buying, but the basic extras to bear in mind are things like mortgage and lawyers’ fees, taxes and insurance. Work in out as a percentage of the purchase price – this will be roughly 10% if you’re buying in France and Portugal, 15% for Italy and 12% for Spain. It all comes back, though, to knowing in advance exactly what you have to pay.

When paying off the mortgage, how do I make sure I don’t lose out to the exchange rates?

Most people use their bank to make the payment for the deposit and any subsequent maintenance or mortgage payments that need to be made. However, as an alternative you should contact a currency exchange specialist, which generally provide superior exchange rates and help people save money when making international payments. Also, there will be lower fees, or none at all, and the levels of service will tend to be better than what you get from your bank.

In terms of ‘not losing out’, there are products that let you protect your payment from adverse moves in the exchange rate. For example, you can fix a rate in advance for a payment in the future, but if the rate goes against you before the payment is due to be made, you’ll be unaffected, having already agreed a rate.

Bear in mind you won’t be able to benefit if rates move in your favour as the rate and amount is fixed. If you decide this is the best choice for you, you’ll be asked to pay an initial deposit so that the rate can be ‘held’ for you.

Edward Hardy is the Industry Manager of foreign exchange specialists World First.