Thinking about getting a mortgage to buy a house abroad?
Living abroad can offer many advantages, such as a lower cost of living, exposure to a new culture, and lower house prices, but deciding to put down some new roots and make a fresh start abroad is a big decision.
Taking the plunge and buying a property overseas can be daunting – particularly when it comes to finances and organising a mortgage.
There are several different options available to British expats who want to buy property abroad — this guide covers the three best ways to fund a property overseas…
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Can I Get a UK Mortgage To Buy a House Abroad?
It may seem contrary, but many UK banks offer ‘overseas’ mortgages specifically designed for UK nationals wanting to buy property in another country.
British expats are likely to find it easier to get financing in the UK, as they have access to their history of domestic payments and borrowing to help bank lenders assess their ability to repay the mortgage.
Another advantage to getting a UK mortgage to buy a house abroad is the lack of language barriers which can sometimes be a cause of confusion with a foreign bank or money lender.
However, banks generally only offer mortgages in countries where they operate and have offices, meaning that different banks will offer financing for properties in different countries — with more exotic locations sometimes not being covered at all.
For example, expats looking to buy a home in Spain or France are more likely to find an overseas mortgage than expats wanting to purchase property in Jamaica.
Take a look at this video for more insight:
Once the overseas mortgage has been arranged by the UK bank, the foreign office the closest to the new property is where all further mortgage dealings will take place.
In addition, a mortgage for an overseas property with a UK bank is more likely to be tightly regulated, offering expats better financial protection should they receive bad advice or if something should go wrong.
Arranging a Mortgage Abroad
A sensible option — particularly for those expats already permanently living in their new country who may find it more difficult to return to the UK — is to arrange a mortgage from a foreign bank or lender in the country they’re buying property in.
If you are an expat looking for an overseas mortgage then each country will be different with its own rules and regulations for overseas borrowers.
Most foreign lenders tend to calculate how much an applicant can afford to borrow based on 30-35% of their total net personal income in order to take into account any outstanding loans, monthly repayments and other financial liabilities.
Employment history will also be taken into account, and if you are self-employed, you will ideally have at least three years’ trading history with a minimum of two years’ profitable accounts.
You will also usually require a larger deposit than if you were taking out a mortgage with a UK bank, but you may well benefit from lower interest rates, and needn’t worry about getting stung by fluctuating exchange rates.
If you aren’t confident about any aspect of securing a mortgage with a foreign bank, it is a good idea to enlist the services of a specialist broker who will be able to assist you with the process of obtaining a mortgage and explain all the legalities.
It’s also worth noting that overseas banks and mortgage brokers are not covered by the Financial Conduct Authority, so if any issues were to arise in regards to your foreign mortgage, you may struggle to get any compensation.
Additionally, in many foreign countries deposits are non refundable, so beware of handing over any money before a contract is signed.
Remortgaging UK Property to Buy Abroad
If you are fortunate enough to already own a property in the UK, it can be put to good use when buying a property oversea.
Remortgaging your UK home can provide you with a large cash lump sum to put towards the purchase of your new home abroad, and may even be sufficient to buy it outright.
Provided your existing mortgage is not more than about 70% of your home in the UK, raising further capital by remortgaging can be an option.
Remortgaging can be arranged either with an existing lender or a new one, but doing so will obviously increase your monthly repayments, and remortgages are usually subject to higher rates of interest which can make a significant increase to what you owe.
There are pros and cons to each method of finance, and what may be suitable for one person may not be suitable for another.
Equally, depending on their individual personal financial circumstances — for example if they can’t provide sufficient evidence to a foreign bank to obtain a mortgage – expats may find that they are only able to pursue a mortgage with a UK bank.
If you do decide to go ahead with a foreign mortgage in your intended country, make sure that everything is legal and above board, and if possible hire an expert to make sure everything goes smoothly.