Overseas - Thursday, July 15, 2004

Thursday, July 15, 2004

Fancy a second home – or even a new life in sunnier climes? Hilary Osborne of What Mortgage magazine explains your mortgage options.

Most of us return from an overseas break desperate to go back. Some people simply book another holiday for later in the year; others consider buying a new home for holidays or even relocating completely. Fortunately, those who do want to put down foundations in a foreign country have a number of places to turn to for funding.

Can I get a UK mortgage to buy an overseas property?

A UK lender will not offer a mortgage on property in another country because it will be unable to repossess should you default on the loan. To raise money against an overseas property you will need to approach a local lender.

Some of these are subsidiaries of British banks and building societies. For example, Norwich & Peterborough Building Society has a lending arm covering Spain and Gibraltar, as do Halifax and Leeds & Holbeck Building Society among others. HSBC owns French bank CCF, while Barclays has a presence in Spain, Portugal and France, and the Woolwich in Italy.

You may prefer to use one of these lenders because you have some knowledge of their parent company and you can easily obtain information on their services in the UK. However, you can also access overseas lenders while still in this country by using a specialist broker. Conti Financial Services can source loans in 27 countries, including places as diverse as Australia and Dubai, while Propertyfinance4less can assist with purchases in seven countries, including popular places such as Florida and Cyprus.

Alternatively, you can use your UK property to raise funds for your overseas purchase. This may be your only option if you are self-employed and looking for a self-certification deal.

How does that work?

If you have enough equity in your property to partly fund the purchase of a second home you can release it with a remortgage. This will help you avoid the potential confusion of arranging a mortgage in a different language, and will mean one mortgage payment each month. Ipswich Building Society offers a deal specifically for this purpose. The Sunshine Mortgage is secured on your UK property and allows you to borrow up to 80 per cent of its value. This can be released in stages, so you can draw down money for a deposit when you need it then take the rest on completion.

You don’t need a special remortgage deal to achieve the same as Ipswich offers but you may need to negotiate with the lender if you don’t want to release all of the cash at once.

How do I apply for an overseas mortgage?

‘A lot of the process of buying a house in Spain with a Norwich & Peterborough mortgage is the same as buying a property in the UK,’ says the society’s spokeswoman Anna Guthrie. And the same is true in most countries. A broker will usually pre-qualify you for a loan – this means getting an agreement in principle on your behalf – and you can do this yourself if you apply direct. The lender will ask details of your income and outgoings, as in the UK; it will want details of the property you intend to buy; and it will instruct a valuation.

What’s different?

The main difference is the law. In Spain contracts become binding much earlier than in England and Wales, while in France there is a compulsory ten-day cooling-off period between the day the mortgage offer is issued and the day you can accept it. Different laws exist from country to country, so you need to find a lawyer who can explain it all thoroughly in English. ‘Do not sign anything you do not understand,’ says Simon Conn, senior partner at Conti Financial.

In general, to buy abroad you need a larger deposit than is required in the UK. French lender CCF caps borrowing at 80 per cent loan to value (LTV) and the maximum Conti Financial can secure in France is 85 per cent LTV (70 per cent if the loan is not in euros). Barclays offers up to 70 per cent LTV in Spain, Norwich & Peterborough up to 75 per cent and Conti Financial can source mortgages to a maximum of 80 per cent.

The term of the mortgage may also be restricted. In Europe, some lenders limit terms to 15 years. But if you want a longer term you may be able to find one be shopping around.

Does it matter if it’s a new home or a second property?

Not really, although according to Simon Conn you may be offered a higher LTV if you are resident in the country. If you are relocating the lender will need to know where your income will be coming from. Income from an employer you are continuing to work with is fine, as is income from a personal pension.

Problems arise when you decide to relocate to change your life. ‘If someone is going to start a hotel or bar we won’t be able to help them until they have built up a track record,’ says Conn. ‘If they’re relocating with an existing employer that’s fine.’

The lender won’t be concerned if the property is to be a holiday home, but it won’t take rental income into account when calculating affordability. It will consider rental income on a UK property if you are relocating and letting your existing home. ‘If the mortgage is being covered by the rent they won’t take the mortgage payments into account,’ says Conn.

Overseas lenders often look at affordability and limit the total borrowing to a set percentage of your income. CCF’s approach is fairly typical: it insists loan repayments on the French mortgage and all other loans do not add up to more than 33 per cent of joint or single monthly income.

What else should I know?

Getting a mortgage shouldn’t be a problem unless you are unable to prove income; but making a success of your overseas purchase requires a clear head. Don’t commit to anything before you have looked carefully at the details of the offer. Have the contracts checked and translated, commission a survey and be aware of the potential costs. As Simon Conn says, ‘Do the same things overseas that you would at home.’

Overseas

posted on Thursday, July 15, 2004 2:46:55 PM (GMT Standard Time, UTC+00:00)

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Friday, April 02, 2004

Buying abroad

Property abroad is becoming more popular every year as more discover its advantages. We look at where the homes are and what’s involved in an overseas purchase.

Buying a home abroad was until quite recently something only the very wealthy could do. The rest of us found that these properties were not only prohibitively expensive but also difficult to get to. These two factors are linked, of course. With the advent of low-cost air travel, the average Briton has found that holiday destinations are accessible more than once a year – and that has meant a big increase in the construction of homes in places such as Spain, France and Florida. This in turn has meant lower prices.
One factor that has brought about an increase in the popularity of buying property in general – and overseas property in particular – is the underperforming stock market. More people now see property as the safest place to put their money, and perennially popular holiday destinations are almost guaranteed a clientele that will pay for this investment.

Also, mortgage borrowing is cheap; far from the days when interest rates shot up to over ten per cent and hovered somewhere between there and 15 per cent, the past four years have been characterised by a low and surprisingly stable base rate. A further reason is the lack of supply in the UK property market; with relatively little housing stock in which to invest domestically, it is little wonder that those who have money to spend on property go further afield.
This trend towards increased ownership abroad has brought vastly increased choice to today’s buyers; there is now a situation in which prospective buyers choose from a number of locations and weigh up several aspects that will determine whether the purchase is a good idea. The decision about where (and whether) to buy should not be taken lightly; remember that although relocating abroad is a fantasy that many share, the actual transaction must be grounded in reality. Do your research, get your finances in order and be realistic.

Location

The overseas market is constantly growing, and locations which were hardly considered five years ago are now high on the list of British buyers. Spain is still the king of overseas destinations, with over 100,000 UK citizens now living there full-time and thousands more owning holiday homes or investment property. The country receives 12.5 million UK visitors per year, meaning those investing in property in a popular resort area would have no shortage of tenants. Properties tend to be apartments; those located next to golf courses are extremely popular, as are those near the seafront in the famous Costas.
France is also an extremely popular place for investment buyers, with half a million Britons now owning homes there. Cottages make up a good percentage of French properties and prices vary widely. Your budget will help you decide whether you want a villa in the Côte d’Azur or a simple cottage in less gilded (but still beautiful) Normandy.
Italy is gaining ground as a destination of choice, for both buyers and holidaymakers; homes in Tuscany are particularly sought-after. Portugal is a well-established holiday and retirement location for Brits, and buyers are also heading for Greece, Florida and, increasingly, eastern Europe.
Wherever you are interested in buying, don’t just go there once in mid-summer and make your decision. See what the area is like in all weathers, high season and low.

The process

Anyone considering buying a property in a foreign country, whether or not it is your intention to live there full-time, must take into account differences in the purchasing process and tax laws from that of the UK. It is up to you to make sure you let ignorance of the local laws, culture or language lead you up the wrong path; the purchase of property overseas is as important a purchase as a domestic one – and because of unfamiliarity there is more chance you can make a mistake if you are not careful.
In France, for instance, the sale of a second home is liable for capital gains tax. And the process of buying there is vastly different from what you may be used to; under French law, once you make a formal offer on a property you are committed to the purchase.

In Spain and Portugal, as in France, the contracts are signed much earlier in the buying process. Many newly built Spanish and Portuguese properties are bought off-plan, as is increasingly the case with newly built UK property; stamp duty on new builds is 0.5 per cent. The sale of a Spanish property is liable for 35 per cent capital gains tax for those who are non-resident in the country; there is also a complex system of allowances to partly offset the rate of tax, and these should be explained to you by a tax expert. There is also a large market in Spain and Portugal for plots of land on which the buyers then build their own homes. Wherever you buy – and whatever the type or state of the property – it is vital to have any contracts thoroughly checked by a bilingual lawyer.

Protect yourself

The most important thing when buying abroad is to make sure you have not made yourself financially vulnerable. Get the best advice you can at every stage of the process. There are many overseas property exhibitions that tour the UK regularly. Get an idea of the market in each country that interests you by going along to some of these and asking questions.
The importance of being prepared cannot be overestimated. Make use of the help that is available to you and your overseas purchase could be the best move you’ve ever made.

Overseas