One of the most startling social revolutions of the last 20 years has been the amazing growth of property ownership abroad. With thousands upon thousands of British citizens now property owners abroad there are more and more people who need to access a foreign mortgage.
When taking out a mortgage in a foreign country there are a lot of things that you need to take into consideration that you may not have thought of.
Your foreign mortgage is likely to in the currency of the country from where the borrowing is being taken. That means that if you work in the UK, and earn your money in sterling, that you will have to change sterling to the host currency. That means that you will exposed to fluctuating exchange rates. For example if you have a Euro zone mortgage you will have seen your payments increase by around 30% in the last 18 months.
Also, you probably find that the mortgage products available for your overseas mortgage will be less and that the fees, charges and rates are not as competitive as here in the UK. Even with the current economic climate, UK consumers have enjoyed unrivalled choice and low mortgage prices from a cut throat UK mortgage market.
To counteract currency fluctuations, and to offset the costs of a second home abroad, many borrowers will rent their properties as short holiday lets. This is useful as it creates an income in the local currency, and offsets the cost of the mortgage.
- Choosing an overseas mortgage
-
When taking out a mortgage overseas you must be sure that you fully understand how the mortgage works, the legal position, your responsibilies, and fees, costs and local taxes. You may find that the costs and taxes involved are much higher than you would expect to pay in the UK.
If you already have an overseas mortgage and wish to remortgage, you should first consider approaching your existing lender. This may save you considerable and money.
If however you wish to switch lender or the mortgage is going to be new borrowing then it is vital that you get plenty of information, and independent legal advice.
Depending on your language skills or the availability of fluent English speakers in the country you wish to borrow in, you may want to consider a recommendation from your estate agent abroad, or a local legal professional.
- Is there an alternative to fund my overseas property?
-
There is an excellent alternative to a mortgage abroad. If you own a property in the UK in which you have equity then you may wish to consider remortgage that property to fund part or all of the purchase abroad.
There are many benefits and some disadvantages to take into account. On the upside you can arrange your mortgage in the UK easily and usually very economically. You will have a wide range of products to choose from and you will probably be familiar with the system. The mortgage, if on your home, will afford you a lot on consumer protection which you may not have if you borrow abroad.
If you raise the money here in the UK you will also become a cash buyer when negotiating your purchase overseas which will give you bargaining power.
On the downside, you will be changing a large sum of money when you send the funds overseas, so you will be exposed to exchange rate fluctuations, good and bad. Also, if you intent to rent out the property, you may not be able to offset the interest paid against the rent received for tax purposes the foreign country. Also, by increasing your borrowing the money against a property in the UK may expose you lender action if you fail to keep up repayments. You must consider carefully the commitment you are making and the risk you are exposing your UK property in the even that your circumstances change.
If you wish to explore the option of raising the money here in the UK, go to the remortgage section of the website for more information and access to our free mortgage calculators and free online home valuations.
