What is an overseas mortgage? Basically, this is a mortgage loan for financing a property that’s not in the home country. These mortgages are ideal for individuals looking to buy a holiday home, retiring home, or just buying their first property overseas as they can’t afford to buy one in their country. If you are in the UK, you will be able to arrange an overseas mortgage through an international lender or a UK bank. You can also remortgage your UK property for you to raise funds to finance your home abroad.
Borrowing from a UK bank to finance your overseas property
There are several banks in the UK that do offer international mortgage services. However, you will need to find out the countries in which these mortgages operate as these banks only provide these loans for property purchases only in countries where they operate. Obtaining overseas mortgages isn’t always easy. In established property markets such as Spain or France, it might be simple, but if you are looking further afield that’s when it gets trickier. Once you are approved for a mortgage in the UK, the foreign arm of that bank will be the one to give you the loan.
It is important though to note that in the past, there used to be several banks that could provide overseas mortgages to customers. But in recent times, that number dwindled. This was attributed to a setback experienced in the property market a decade ago and individuals who owned property overseas were seeing a massive rise in their foreign currency debt. So, the banks that remained tightened their lending requirements.
Is there any deposit needed?
Yes, there is. In the UK, you will find that you will need to put down a 10% deposit. But when you decide to take a mortgage overseas, it rises to around 20-30% where the lender provides the remaining 70-80%.
Remortgaging your property in order to buy an overseas property
If you have a home in the UK, remortgaging it could help you raise finances to purchase an overseas property. Your ability or sensibility of this option largely depends on your circumstances, which includes your current credit rating and the paid off amount of the loan, not forgetting about the interest rates at the time of the application.
Arranging an overseas mortgage
With the help of a mortgage broker, homeowners that need help getting mortgages in a foreign country can easily do so. What these brokers do is to give the homeowners tailored information applicable to the country of choice, including a list of lawyers and estate agents. Mortgage rates vary with countries, where you find rates far lower in some than in the UK. This is particularly so in countries with established property markets and has a wide range of mortgage lenders, increasing your chances of getting a better deal. The problem would be if you were given bad advice, and lose money, you might encounter challenges trying to get any compensation, especially if you encounter a broker that’s not covered by the Financial Conduct Authority. So, you need to be very careful when hiring an overseas mortgage broker. Also, you need to consider the exchange rate fluctuations, as it would have a direct impact on what you spend on the property.
Advantages of overseas mortgages
Since the economic downturn that hit the world a couple of years ago, not only were cut-price properties availed, but foreign lenders such as Spain, France, and Italy are becoming more flexible. All this is aimed at attracting more homebuyers looking for mortgages abroad to invest in the countries. With lower interest rates in some of the countries, it is quite favourable to the homeowners to borrow directly in those countries to finance their property purchase. In the event that local currency weakens vis-a-vis Pound Sterling, it becomes even a better deal considering that the overseas mortgage loan would appear even much cheaper, relatively speaking.
Disadvantages of overseas mortgages
The same way currency fluctuations can be advantageous to you, is how it can turn out to be disheartening. Say for instance you decided to purchase a property in another country but didn’t pay immediately, and so, the currency in that country strengthens against your home country’s currency, you will find yourself running out of money when it’s time to make the payment. In this case, the overseas mortgage might become rather a heavier burden.
Also, when borrowing an oversee mortgage, there is always the risk of language barriers. Without a trustworthy mortgage broker helping you through the process and answering all your questions, you could miss some crucial things, which means that you will end up ruining your investment. For this reason, if you are a homeowner looking for mortgage overseas, the best thing to do is to find a reliable and trustworthy mortgage broker whom you would trust to handle your finances.
How to protect yourself from the exchange rates fluctuation
Most homeowners use their banks to make payments for their deposits and any subsequent servicing of the mortgage. Alternatively, the homeowner can contact a currency exchange specialist, who provides dedicated FX services, which in turn helps one to save money when making international payments. Alternatively, you may consider leveraging technology by using online money transfer companies such as TransferWise or WorldRemit. They use innovative ways to reduce the number of intermediaries, and therefore, offer the best rates possible.
Moreover, to protect yourself from currency fluctuations, there are a few products that would let you protect your future payment from adverse exchange moves. For instance, you can decide to enter into an agreement which fixes a rate in advance for your future payments. As a result, even when the exchange rate goes against you before making the payments, you won’t be affected since your rate will already be agreed upon. However, you should also note that, with your rate fixed, when the prices move in your favour, you won’t be able to benefit. If this is what you want, you will be eliminating all the currency risks, while forgoing all the potential currency gains as well.