Getting a mortgage abroad doesn’t have to be complicated. However, there are a number of pitfalls to look out for.
Needless to say, an error here could cost you a lot of time and money, so above all: plan carefully!
That in mind, let’s look at some of the main things you’ll need to bear in mind:
First things first, will I actually need an ‘overseas mortgage’?
As a general rule, you won’t usually be able to use a straight UK mortgage offer or deal on foreign property.
You may be able to get a mortgage through your own bank if they have foreign branches in your chosen location. However, better offers and special deals are usually for local buyers.
Some UK banks, meanwhile, won’t lend against foreign property at all.
In other words, it depends on your circumstances.
What if I do need a mortgage from an overseas lender?
Different countries will have their own rules, and there are some foreign banks that won’t lend to foreigners at all. Or if they will, they’ll only do so with clauses and conditions in place.
In Thailand, for example, foreign nationals cannot legally buy land. This means that while foreigners can buy apartments, they can’t buy a house.
Unsurprisingly, the more popular a country is for expats, the easier you’ll usually find it to get a mortgage. It won’t be too difficult for a British national to arrange a mortgage in Portugal or Spain for instance.
The other thing to bear in mind is that due to the property crash in many areas of Europe, the number of lenders prepared to offer mortgages to foreigners has dwindled.
This doesn’t mean you won’t be able to get a mortgage, just that you can expect the process to be stricter.
In the UK, it’s possible to secure properties with as little as 5-10% of the purchase price.
Unfortunately, that’s not usually the case when getting a mortgage abroad. You may be expected to offer up as much as 20-30% of the full price, depending on your individual circumstances.
In some countries, the rates are even higher. Lenders in countries like Croatia and South Africa will often ask for as much as 40 or even 50%.
So, what are the main risks to taking out a mortgage abroad?
There are four main pitfalls when it comes to taking out a foreign mortgage:
- Tax. The amount of tax you’re due to pay will depend on the local law tax laws and the cost of the property. Even within EU states, though, this can vary substantially. So do your research.
- Paperwork. Every location will have its own unique regulations, licenses and planning laws. For this reason alone it’s vital to get legal help from a specialist in the local area. You want to make sure you know which fees you’ll be expected to pay before you sign on the dotted line.
- Exchange rate changes. Even minor changes to the exchange rate can have a heavy impact on the cost of your new property. A good FX broker can help maximise the value you get from your FX transfer, even in more volatile market environments.
- Hard sellers. Foreign developers can often be quite intense. It’s important to avoid being hassled into making a purchase before you’ve sorted all the details and are genuinely happy to proceed.
A word on financial security
If you’re based in the UK, you’ll be used to mortgages being covered by the Financial Conduct Authority (FCA) and the Financial Ombudsman Service.
However, that’s usually not the case if you take out a mortgage overseas. This means that if anything goes wrong, you won’t be able to appeal to either body.
Make sure you get independent advice.
In the words of the Foreign and Commonwealth Office:
“We strongly recommend that prospective purchasers of overseas property seek independent legal and financial advice at all stages of their purchase.”
And we couldn’t agree more.
The simple fact is that laws and regulations vary substantially depending on the country you’re in as well as the region of that country.
You can expect to know where the potential traps are in the small print, which means that obtaining independent legal and financial advice is essential.
The most crucial thing is to find local solicitors or lawyers who are fluent in English, but who also has substantial experience in assisting foreign property buyers.
Make sure everyone’s certified
Naturally, you want to make sure that your chosen solicitor is also certified by their native government or managing body. (Most countries have some kind of certification.)
If you’re unsure, the British Embassy website carries a pretty exhaustive database of local English speaking specialists.
We mentioned this briefly earlier, but it’s worth re-iterating:
You need to take the impact of exchange rates on your purchase seriously. On a six-figure mortgage, getting the right exchange rate could save you four figures.
The key thing here is to avoid the banks. Many people go straight to the high street for their currency exchange, and as a result they pay much more than they need to.
Not only do banks typically charge a much higher exchange rate, they often add on quite substantial fees. As a result, what you pay is nowhere near the interbank rate (the rate banks trade with each other at).
With a reputable FX broker, you’ll be able to get a rate that’s much closer to the interbank rate, and you won’t have to deal with any hidden fees.
There are a number of other benefits to working with a real FX broker:
- They can help you better understand the markets. If you’re moving to a new location, the chances are you’ll be making multiple currency transfers in future in addition to your mortgage. A good FX broker can help you locate the best times to make your move so you maximise value.
- They can save you time. Finding the best FX rates can be a time-consuming process. You need to read up on the financial news to look for events that can move the markets, and you’ll also need to keep a constant eye on rates to get the context for knowing which rates are good. A good FX broker means you can get those best rates without doing the work yourself.
- They can make you more money. A good FX broker will, simply, save you a lot of money. Especially if you’re planning to make multiple transactions. Remember, on larger transfers, big moves in the FX market could cost you up to four figures, maybe even five. A good FX broker can help you avoid the worst of the FX rate volatility.
Get in touch
If you’d like to know more about how you can get maximum value from your currency exchange, Privalgo can help.
Our currency transfer experts can help you get a great rate, and ensure an easy transaction.