Buying at the right exchange rate and securing the right interest rate on your loan.
International Mortgages
The main consideration when buying a property overseas is the financing of the property. People buy an overseas property for different reasons. Some buy a Villa in Spain as a holiday home to enjoy. Others might purchase a ski apartment in France as an investment. Other investors may have a portfolio of overseas properties from which they enjoy a good rental income. A high proportion of people in the UK buy an overseas property because they are emigrating to another country.
Overseas property buyers or investors fund the purchase of the property in different ways. Some investors have a surplus of cash and can buy the property from their own funds and just have one foreign exchange risk at the time of purchase.
However the majority of overseas property purchases are completed with the use of borrowed funds. There are two avenues to explore when funding an overseas property. You can take out a mortgage (or re-mortgage) in your domicile country, exchange the currency and transfer a currency lump sum. The mortgage is then serviced in your own currency. The downside is that in retrospect (in the medium term) the exchange rate may not have been favourable at the time of exchange. For example if you exchange £100,000 into euros at an exchange rate of 1.4500 pound to euro and buy 145,000 euro then you may feel happy with the rate in comparison to its recent performance. However if the exchange rate then traded at 1.50 plus after a year or two you will be ruing a missed opportunity.
The alternative option is to take out a mortgage in the local currency to pay for the property. However you then have to pay the mortgage in the local currency every month. You can see this as a great opportunity to spread the currency risk over a long period of time. Many foreign exchange companies offer the opportunity to help by offering fixed currency payment plans. When the exchange rate is favourable the regular currency payment plans allows you to fix the exchange rate for up to two years ahead.
The differential in interest rates between the two relevant countries will have a big bearing on the decision whether to take out an international mortgage or a domestic mortgage. Some countries interest rates are much lower than others and therefore the cost of borrowing will be less and an International mortgage will look like a better bet. However there will be associated costs with servicing an international mortgage and it then depends on the view about future exchange rates. To determine the best option for your currency exchange and transfer you will have to consider many factors including currency exchange, currency transfer costs and interest rates. Depending on which country you are buying your property there may be other considerations as the processes and international mortgage rules may differ from your own country.
View simple guides for mortgages abroad; however they are not definitive and should only be used as such and are not a statement of fact.
Mortgages abroad; these guides are not definitive and should only be used as such and are not a statement of fact, buy give an indication
of things to look out for when you are considering such an important transaction. Specialist international mortgage advisers, foreign currency brokers and tax specialists
should be consulted as it is not only a good deal on the interest rate of your loan, but also the execution of the payments. Change in the currency exchange rate will affect the buying
price of the property, the mortgage repayments and are critical in the evaluation of risk management of your foreign investment.
Different rules will apply depending on the country that you purchase in, a couple of guide examples are below:
Mortgage in Ireland
A loan approval document must be completed and an 'Approval in Principle' is issued. All relevant documents are required such as proof of income. A letter of offer can then be released for the purchase of a property in Ireland. Terms vary and required deposits vary.
Italian Mortgage
Italian mortgages are usually a repayment mortgage and if you are not an Italian Resident, the maximum amount of loan you can apply for is 75% of the valuation or purchase price. The term of the mortgage loan is usually between 7 and 20 years, up to a maximum age of 70 years. In order to progress the Italian Mortgage request the lender will require proof of income including earned income, pension, investment or rental income. The property must be certified as residential and must be in a habitable condition without requiring improvement, and not be isolated.
Portuguese Mortgage
Portuguese mortgages are available for acquisition, renovation and construction of a property in Portugal and the mortgage is secured on the property in Portugal.
A deposit of 20% of the purchase price of the property in Portugal is normally required and a Portuguese mortgage is usually between 5 and 25 years in the form of a repayment international mortgage. Commonly 35%of an applicant's net income should cover existing outgoings and the monthly repayment on the Portuguese loan. The mortgage lender will not necessarily take into account the potential rental income of the Portuguese property.
South African mortgage
There is no minimum or maximum amount for mortgages in South Africa for buying a property. International mortgages in South Africa can be arranged for between 5 and 25 years. The maximum you can borrow is 30% of your gross monthly income, however renting your property out is permitted and the banks will normally take into account 50% of this income in your application.
Finance and payment for International mortgages
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