International mortgages

International mortgages

A mortgage is a sum of money borrowed from a bank or building society, for the purchase of property. It is paid back over an agreed period (usually no less than 5 years).

The international mortgage is similar in many ways to a mortgage you would take out when purchasing property in the UK. However, there may be different taxation levels, fees or restrictions to consider when purchasing abroad.

Top tips for buying abroad

  • 1. Never sign a contract that you do not understand (for example - if it is in a foreign language)
  • 2. Always ensure that you seek specialist advice from independent Solicitors, Architects and Surveyors before considering a purchase overseas. They should be proficient in your chosen country's laws and processes and know the specifics involved in buying a property there
  • 3. Ensure you do not inherit a debt on the property before you purchase, which a solicitor should be able to check , i.e.: If the developer has borrowed money to build the development and this amount has been allocated against each plot as additional security to the developer's bank
  • 4. Always give yourself a "cooling off" period if you see a "must-have property" and are tempted to put down a deposit there and then
  • 5. If you are arranging finance on the property, ensure that this is stated in any contract and you have an "opt-out clause" if the loan is not agreed (which will ensure any deposit paid is refunded)
  • 6. Try to arrange your mortgage finance "in principle", before agreeing to purchase the property, or before signing any contracts and paying over a deposit
  • 7. Arrange your mortgage in the currency that you earn in where possible, unless you are going to receive rental income from that property in the local currency and then this may be a possible alternative option, dependent on the lender's criteria
  • 8. Think about combining your cash with friends or family: it could bring a Villa with pool within your financial reach, rather than simply an Apartment
  • 9. Check with the Estate Agent or vendor that you are aware of the costs charged by the legal and government authorities for purchasing a property in your chosen country
  • 10. Open a bank account in your chosen country and ensure you get a Certificate of Importation for the money you bring in from your home country
  • 11. Set up standing orders in a local bank account to meet bills and taxes. Failure to pay your taxes in some countries, such as France, Portugal and Spain, could lead to court action and possible seizure of your property
  • 12. Remember that bills do not end at the asking price. Lawyer's fees, Taxes, Insurance etc. must all be met in your host country and can often be more expensive

Local lenders

Mortgages taken out from a local bank or building society*. If you are dealing with lenders in the country you wish to purchase the property from, consider that you must have the means to communicate thoroughly with the local bank.

This may bring added costs of interpreters, as not all lenders will be able to speak English. In addition to this, some lenders will be reluctant to offer mortgages to non-nationals.

The rate of interest they offer you may be quite high, or alternatively lending regulations may simply make it impossible for you to obtain any kind of credit. Remember that being on the electoral roll is a very important part of getting credit in the UK, and that you are unlikely to be able to claim the equivalent status in the country you are moving to, unless you already have residence rights through marriage, or long term employment. If you are moving within the EC, this is less of an issue, as you have full freedom of movement, employment, and voting rights within the Union boundaries.

*Note that not all countries will use the term 'building society'. In the USA, for example, the closest equivalent is a credit union, although these are usually based around major local employers, or interest groups, and are unlikely to lend to UK borrowers.

Extra costs

  • Taxation - this will vary enormously from country to country, so it is very important you look into the countries policies on this
  • Sales commission
  • Conveyance fees
  • Stamp duty - some countries impose extremely high stamp duties, although these may come under general taxation issues
  • Also consider the costs of communicating with, and visiting the country
  • There can be other fees not mentioned here, so it is vital that before purchasing a property, you familiarise yourself with all possible costs you will incur.

    Benefits

    Besides the obvious benefit of owning a home in another country for personal pleasure, the financial benefits can be huge. In some countries, the property markets are their biggest growth industries. Therefore, a property bought abroad could become a considerable personal asset.

    Mortgages abroad from international institutions

    These lenders give you the advantage of their expert knowledge of the country you wish to wish to purchase property in, and they have the experience to mediate between yourself and the local authorities. They will also be familiar with any problems you come across while trying to purchase property.

    However, these lenders may charge for services, and can become quite expensive.

    Repayment and interest-only mortgages

    When you have decided where you would like to take out your mortgage, you must decide what type of mortgage you wish to take out. The types of mortgage you will be offered will vary from country to country, but the two main types are:

    • The repayment mortgage
    • The interest only mortgage

    Repayment mortgages

    This works on the principal that each month, you pay off a small portion of the original loan, plus the interest accrued. At the end of the mortgage's life span you will own 100 per cent of the property, although the monthly repayment can be high.

    Interest-only mortgages

    With this plan you pay only the interest each month. These mortgages are usually only considered when they are taken out in conjunction with another repayment plan. These can include, Endowment policies, ISAs or pension plans. Financial advice is recommended if you are considering taking out an ISA.

    Flexible mortgages

    Some banks may also give you the option of taking out a Flexible Mortgage. This way the lender gives you the option of paying more than the agreed monthly amount into your mortgage when you can afford to, or even skipping payments if you are in short term financial difficulty. Flexible mortgages are usually available on repayment mortgage packages.

    UK banks and building societies

    In this instance, you will find yourself dealing with a familiar system of mortgage lending. However, not all lenders will be prepared to offer you mortgages abroad. Some lenders may offer you very competitive interest rates, whereas other may be more cautious about lending money for use abroad, and may increase the rate of interest. It is advisable, if this is the option you choose, to examine the lender's policies on international mortgages to ensure that you get the best deal.

    Local knowledge of the country you are buying property in is also important, and not all banks or building societies will have this knowledge.



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