Right mortgage choice when buying abroad

Right mortgage choice when buying abroad

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Mortgage services to buy property abroad are available from many offshore banks and building societies.

Rates vary depending on the country, but they are likely to be slightly lower by purchasing in Europe and taking out a mortgage through a well-known offshore bank, then they are on a property in the UK.

Some banks will offer mortgages only in euros, although others do also offer them in sterling for people buying in Europe. Anyone who opts for a euro mortgage but is paid in another currency should remember that there is the risk of volatility in the exchange rate.

Anyone who is paid in sterling should try to borrow in sterling. Euro mortgages are really only suitable for those earning euros. David Hollingworth, of mortgage brokers London & Country Mortgages, said: “There can be additional exchange rate risk if borrowers take the mortgage in a different currency from that in which they derive their income.

“For example, if the foreign currency strengthens against the pound then effectively the mortgage and the monthly payments increase even though there has been no change in the interest rate charged. If a foreign lender is used, the mortgage is likely to be in the foreign currency, whereas some of the offshore operations of UK lenders will be able to lend in sterling.”

It is not just currency risk that could cause problems. Legal systems can vary greatly, so it is important to understand the specifics involved. Alison Rolls, of Norwich & Peterborough Building Society, which offers mortgages on properties in southern Spain and Gibraltar, said: “Do be aware that there are significant differences between UK and Spanish land law. In particular, note that contracts to purchase property can become legally binding very quickly, so don’t sign anything before seeking legal advice.

“If you have set your heart on a property because of its wonderful, uninterrupted views, do find out if any development is planned or would be permitted that would ruin your vista.”

Norwich & Peterborough will lend up to 75 per cent of the property valuation in sterling, and the minimum purchase price must be £60,000. Its Spanish home loans include a standard variable rate, currently 6.75 per cent; a tracker mortgage which is the UK bank base rate of 4.75 per cent plus 0.24 per cent in years one and two, followed by the base rate plus 1.25pc per cent in years three to five, followed by the variable rate; a two-year fixed rate at 3.79 per cent; and a five year fixed rate at 5.49 per cent. Application fees start at £375, depending on the valuation and there is a £250 reservation fee.

According to the building society, a typical customer buying in southern Spain pays £196,462, compared to £168,614 a year ago. Borrowing averages 58 per cent of the value of the property and the typical mortgage is £113,184 over 16 years.

Anyone finding it difficult to arrange finance could remortgage their UK property to release equity.

Source: Telegraph