Mortgages for Overseas Property
For most people, buying an overseas property is a dream. However, with all the intricacies
and complicated procedures with overseas banks, developers and solicitors, a lot
of people get discouraged with the concept. However, the overseas property mortgage
in the UK has undergone a sudden surge in the recent years.
This can be attributed to the growing number of people wanting to buy properties
abroad for reasons of settlement or property investment and actually do something
to achieve it. The majority of these people are retirees seeking a more peaceful
abode, while at the same time enjoying tax benefits.
Overseas Investment Mortgages
A good number are simple investors who have seen how promising overseas investments
are fast becoming. The strength of the pound is a major contributor to this improving
trend. Also, the mortgage market both in the UK and in overseas banks has also become
more flexible. If you are one of those seeking to buy properties overseas, you will
probably want some mortgage to finance your investment.
In terms of getting a mortgage, you will be faced with two very common choices:
getting an overseas mortgage or settling for a local mortgage in your local UK bank.
An overseas mortgage is available in most countries with an established overseas
property market. This includes most of Europe (Spain,
France,
Switzerland, and Italy)
and the United States of America.
Relatively new to the industry are Greece,
Poland,
Bulgaria, Cyprus and
Turkey, among many others.
Similarities Between Overseas and UK Mortgages Overseas property mortgages are much
like your ordinary mortgage that you get from any UK bank. You are taking out a
loan that is secured against your own property. You have to apply for a loan, wherein
you need to submit necessary documents to prove your income. In both cases, your
documents and finances will be reviewed, and your mortgage will be approved if everything
looks seamless. The entire procedure for getting an overseas property mortgage is
very similar as well.
Differences Between UK and Overseas Mortgages
There are major differences that can be seen between getting a UK mortgage and an
overseas loan. It is important to note that the very nature of the market abroad
means that everything about it works quite differently from the normal and typical
approach that the UK market has adopted. For example, many lenders in other countries
in Europe generally do not offer mortgages based on interest only or on the concept
of buy-to-let.
They base the mortgage amount on your actual earnings rather than the potential
rate you may receive. Consequently, the income multiplier that is all so common
in the UK is not typically used in banks abroad. Instead, the affordability model
is predominant. This model in turn, relies on the debt-to-income ratio that you
have. You need to prove that no more than 40% or less of your income goes into paying
debts and mortgages (including the one you are applying for).
By far the most obvious distinguishing difference between a UK-based ! and an overseas
mortgage is the currency that the mortgage is to be denominated in. So if you buy
a property and get a mortgage, you will be earning in sterling pounds but you will
have to pay your mortgage in a foreign currency (USD, euros, and so on).
Advantages of an Overseas Mortgage
Getting an overseas mortgage has considerable advantages. Foreign banks and lenders
have become very flexible when it comes to lending to UK buyers. This is largely
part of their strategy to draw in more investors and property buyers. As if that
was not enough, interest rates in the Euro zone for example are sometimes lower
than rates in the UK.
Overseas mortgages are effectively back-supported by the foreign property market.
So if you buy a property in Spain on a Euro mortgage, your interest rates will likely
be based around the rates in the Euro zone as set by the European Central Bank.
Today, most of these rates are less than those offered in the UK. Considering this
and depending on the amount of loan, you may have a big difference in your monthly
amortization and repayment.
Decision in Principal Application
Disadvantages of an Overseas Mortgage
The main disadvantage that can be discouraging about overseas mortgages comes from
the fact that it uses another currency. This adds a relatively thick layer of risk
into your investment. With this set-up, you earn in sterling pounds and pay in another
currency.
The sterling pound equivalent of your debt in another foreign currency will surely
fluctuate with time as the exchange rates go up and down. If you are unlucky, and
the rates move against you, the sterling equivalent may become so low that you actually
end up with so much more debt than you originally had.
Another disadvantage to be pointed out with getting an overseas mortgage is the
physical and communication barrier that exists. If you buy a property in Cyprus,
for example, you would need to visit the country at least once to arrange your paperwork
or to personally attend to matters regarding your mortgage. (You can ask a lawyer
or solicitor, but nothing matches being fully aware.) Also, in countries where only
few people can speak good English, communication will prove to be difficult.
There is definitely no room for miscommunication in mortgage application and processing,
either oral or written. You will need to demand all transactions and documents be
written in English. Which one is better? One can not say that getting a UK mortgage
is better than getting an overseas mortgage. What is good for you may not be good
for another. While UK based mortgages are generally easier to proceed to (considering
how used you are with the system), the rates can be very slightly higher.
On the other hand, overseas mortgages may prove lower in terms of interest rates,
but the additional procedures, permissions, and other complicated systems may take
more effort, time and money on your part. The best thing to do is to consult an
independent specialist who can offer you objective advice on your options considering
your current circumstances. Remember that all decisions about investing abroad should
be informed and wise, and more importantly, realistic.
Decision in Principal Application
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