Financing The Purchase Of A Property Abroad
Financing is of course a key thing to consider when you are looking to purchase a property abroad.
If you are unable to purchase the property from your own funds you will need to identify options to obtain a mortgage.
There are basically three options:
1. Remortgage your home – This can be the easiest option if you have sufficient equity in your home. However, the repayments will need to be covered and you will need to satisfy the lender that you have the income or other assets to make the payments. if you are going to be earning in a foreign currency this will open you to exchange rate risks. You should ensure you tell your lender that the money will be used to purchase property abroad.
It may be worth employing a broker if you are unfamiliar with the procedures. Otherwise, you can get multiple quotes online or via the telephone to find the best deal.
Remortgaging a UK property to buy overseas may result in better interest rates than a regular mortgage and if you have paid off your existing mortgage you can borrow a larger amount. The process is likely to be an easier process than using an overseas provider. However, using your UK property as collateral will put it at risk if you cannot repay the mortgage and your ability to use this option in the regulated UK market will depend on personal factors and circumstances
2. Borrow from a domestic bank – There are some banks that will lend on overseas property, particularly those with international networks. Your relationship with a domestic lender can seem an advantage and you will be able to take advantage of your established credit record at home, but you will need to compare the terms with what can be achieved in the country where you are buying the property. The availability and terms will also vary depending on where you are buying the property.
Higher deposits and shorter terms than would be seen on domestic mortgages may result in higher repayments.
Newer and less popular locations may be more difficult to find a bank willing to lend and the terms may be less favourable.
In some countries the location of your mortgage location can have tax implications at home or abroad for capital gains and inheritance tax. There may also be implications for the taxation of any rental income if you plan to rent out the property for all or part of the year. It is worth taking advice to ensure you understand any issues.
3. Arrange an overseas mortgage – There are many brokers able to identify overseas mortgages that will lend to non-resident foreign buyers on favourable terms or you can approach the major banks yourself.
There are many places where interest rates may be lower than in your home country. The terms available will also be different with many working out affordability based on your income. With different data protection laws across the globe it can be difficult to share personal information across borders, so a strong credit rating does not necessarily apply abroad. You may not therefore get the same deal as would be available to a local with established credit.
The process used to assess your eligibility for a mortgage will be similar wherever you apply for a loan and will involve an assessment of your income, assets, spending and credit history. The loan to value and other terms will vary however.
You should consider the pros and cons of borrowing in the local currency. It will tie the currency to the value of the property, but you need to consider which currency your other assets and income are reliant on. If your income is tied to your home currency the cost of your payments will fluctuate with the exchange rate – positively or negatively.
The regulatory environment in the country should also be considered to see what protection you will have in the event of problems, such as the failure of the lending bank.
Whichever option you choose it is worth obtaining advice from an advisor who has experience of the market where you are planning to buy. There can be tax implications of your funding approach as well as other local issues.
A broker will be able to identify your options quickly and having an idea of what is achievable and ideally having agreement in principle will ensure that you look at properties that you will be able to afford.