A complete guide to buying property abroad
Thinking of moving to sunnier climes or buying a holiday home abroad? Learn about getting a mortgage for an overseas property purchase.
If you’re not lucky enough to have the cash available to buy your dream property abroad outright, and remortgaging your home in the UK to raise the money isn’t possible, you’ll need a new mortgage to do it.
What's in this guide?
- What is the process for buying property overseas?
- How can I finance an overseas property?
- Can I remortgage to buy a property overseas?
- 6 matters to consider when purchasing property overseas
- How could the exchange rate affect my mortgage?
- What additional costs should I consider?
- How to research mortgage lenders
- Mortgage costs and types
- Additional costs and considerations
It’s now difficult to find a UK lender that will lend for buying a home overseas so taking out an overseas mortgage is likely to be your best option. One advantage of this is that a lender in the country you’re buying in should carry out all the necessary checks on the property, reducing any risks of buying there.
Also, if you’re planning to let your property to help pay the mortgage, you’ll be earning the money in the same currency as you’ll be making your mortgage payments in. This means you won’t be affected by fluctuations in the exchange rate as you would if you were converting sterling to the local currency.
On the other hand, if you’re earning in sterling in the UK and need to pay your mortgage in another currency you will have to take exchange rates into account, although there are currency exchange providers that let you fix the rate for a particular period to give you certainty.
Bear in mind that the value of the pound could fall further as a result of Brexit, which means your money won’t go as far abroad.
What is the process for buying property overseas?
1. Choose a location
You can buy property in countries all around the world, but the best places to purchase a home will vary according to a range of factors. These include the performance of the Pound versus the local currency, housing prices, and the laws and regulations surrounding foreign investment in property in certain countries.
2. Research local customs
The process of buying a property overseas will vary depending on the country in which you are purchasing. Each country has its own laws and regulations regarding foreign residents buying property, so you’ll need to abide by those.
3. Choose a lender
If you require some financial assistance to purchase your chosen property, you can borrow money in the form of a mortgage. It is important that you research and compare mortgage lenders to make sure you end up with the right mortgage for you.
4. Prepare you money
Regardless of where you’re buying property, you’ll obviously need to transfer money overseas to fund your purchase. The first option many people think of to send money abroad is to go to their bank. Your bank is a good place to start — but only to provide you with a benchmark of how much it will cost you to transfer funds abroad, there are other money transfer services that could save you money.
For more information on sending money abroad, visit our international money transfers page.
How can I finance an overseas property?
You can’t use a standard UK mortgage to fund your overseas property, you will require a specific mortgage from a bank or building society that supports your chosen country. Some mortgage lenders may only support certain countries.
It is worth seeking the advice of your lender or a specialist broker about buying overseas property. They may also be able to advise you on the right location for your property.
The mortgage market is extremely competitive at the moment which works out in favour of the customer as it means there are loads of mortgage options to choose from. It is important to shop around when hunting for the right solution for your borrowing needs.
Another issue to consider is that you’ll be exposing yourself to foreign exchange risk, so finding the most affordable way to transfer money overseas is essential. It’s also a good idea to make sure you won’t be exceeding any foreign exchange controls in the country where you are making your purchase.
Can I remortgage to buy a property overseas?
If you already own a property in the UK and it is possible for you to remortgage on your property, this could be a way of providing you with some equity for a deposit on an overseas property.
For more information on remortgaging, visit our remortgaging guide.
6 matters to consider when purchasing property overseas
- Select the right property. Investing in a property overseas is an opportunity to achieving a profitable income, so selecting a property that is in the right location and also buying at the right price are important decisions.
- Research the market. Conduct research into the area to understand market factors such as price growth, rental yield, vacancy rates and days on market (DOM) to help you decide whether or not it is a good investment area. It’s also a good idea to speak with professionals such as local mortgage brokers, real estate agents, accountants and financial planners to help you decide whether the property will suit your investment strategy.
- Consider using a property manager. A property manager is a good asset for many property investors. Not only will the property manager be able to give you advice about your responsibilities as a landlord, but they can also organise maintenance and repair issues, and help you find the right tenant by conducting reference checks and ensuring that the tenant pays rent in full and on time. They may also act as a mediator in the event that you have a dispute with your tenant.
- Find the right mortgage. Finding the right mortgage and structuring your loan correctly is vital for the success of your investment strategy, and this should be done with the help of an experienced financial adviser and a mortgage broker. You’ll need to decide whether the flexibility of variable rate or the certainty of fixed rate will suit you better. It’s also worth carefully considering the features that will be most beneficial for your mortgage, such as an offset account which can help you reduce the amount of interest payable over the life of the loan.
- Appeal to tenants. You’ll attract better quality tenants if you present the property in good condition. Consider boosting the sell-ability of your property in order to appeal to both tenants as well as future buyers.
- Understanding maintenance costs. It is important to be aware that a buy to let property abroad will require regular maintenance to make it attractive for tenants and this can be costly. You might also want to factor in the cost of regular cleaning and renovation projects.
For more information on buy to let mortgages, visit our buy to let guide.
How could the exchange rate affect my mortgage?
The exchange rate you can get when buying a property abroad is crucial, as it effectively determines how much buying power you have in an overseas market. That is why you should’t rush into buying a property if you have the time to wait to get a better rate. The exchange rate will also have an impact when transferring money overseas. It makes sense to shop around and compare the exchange rates between different money transfer providers. Even a difference of a cent or two in the exchange rate can make a huge difference to the amount of money that arrives to your recipient, especially when you’re dealing in large transfers — as is usually the case when buying property.
What additional costs should I consider?
- Tax. You will need to inform the tax authorities that you’re leaving the UK or that you have a property abroad that provides you with an income. UK citizens are required to pay income tax on income from overseas properties and you may also be required to pay local taxes as well.
- Void periods. You should prepare for the fact that there may be periods when you will have no tenants and therefore no income. This is particularly likely if you have chosen to purchase a property in a location thats popularity is dependent on the season.
How to research mortgage lenders
The easiest way to find a mortgage lender in the country you’re buying a property in is to speak to a mortgage broker in the UK that specialises in overseas mortgages. They have relationships with lenders abroad so can help you get the best deal as well as help you through the application process. This also means you can avoid a language barrier.
Since March 2016, the same rules for selling mortgages for UK properties have applied to mortgages on property in the European Economic Area (EEA). This includes countries in the EU plus Iceland, Norway and Lichtenstein. It means you have the same protection whether you’re getting a mortgage in the UK or EEA.
Brokers must also be authorised by the Financial Conduct Authority, so if you have a complaint about advice you receive in the UK you can complain to the Financial Ombudsman Service if the broker doesn’t deal with your complaint satisfactorily.
If you deal with lenders outside the EEA directly or through a broker in the UK you won’t get the same protection.
Lending criteria are likely to be as strict or even stricter than when you’re taking out a mortgage in the UK since you’re from outside the country you’re borrowing in.
Clare Nessling, managing director of Conti, a broker that has been helping people arrange overseas mortgages since 1994, says: “The documentation you need to provide may be heavier as it’s more difficult for the lender to look at your credit history. You may need to send three to six months of bank statements, for example, as well as copies of your credit reports.” You’ll need at least three years of accounts if you’re self-employed.
Mortgage costs and types
Interest rates for overseas mortgages tend to be low, especially in France and Spain, although they are currently comparable with UK mortgages.
The deposit you need is generally higher than in the UK – you can borrow up to 85% of the property’s value in France and 70% in Spain – and the loan is on a repayment basis. It is possible to take out an interest-only mortgage in France, although you need to have assets greater than the amount of the loan so criteria are strict.
Unlike in the UK, elsewhere in Europe you usually keep the same mortgage at the same rate for the whole term, as there isn’t an active remortgage market.
In France you can get a fixed-rate mortgage from around 1.5% to 2.5% with a minimum deposit of 15% to 40%. You can get variable rates at around 2% – the advantage of these is that they have no early repayment charges, which means you can overpay without penalty.
In Spain fixed rates range from around 2% to 4% with minimum deposits of 30% or 40% required. The longer the term and the smaller the deposit, the more you’ll pay. Learn more about getting a mortgage in Spain.
Clare Nessling advises: “You should explore your finance options before you start looking for a property so you know what you can afford.”
Additional costs and considerations
You should always get independent legal advice from a lawyer in the country you’re buying in who is fluent in English as well as the local language so you can be sure you understand the process and the documents involved.
There will also be other legal, tax and government costs so make sure you research these thoroughly to get an accurate idea of the budget you need. In France and Spain these could be around 10% to 16% of the price of the property.
As when you’re buying a property in the UK, problems that could affect your chances of getting a mortgage include not having a big enough deposit or enough money to pay for all the costs involved, not having sufficient income, outgoings that are too high, the property being undervalued, legal or planning issues with the property or not having enough years of accounts if you are self-employed.
Being aware of these issues and dealing them in advance as much as possible will help to make sure the mortgage process goes smoothly and have you in your dream home in the sun in no time.
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