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.’