Financing an overseas home

Property markets in much of Europe are still under pressure and many properties are selling for a fraction of their value in the boom years. For buyers with assets and/or income in sterling, it may be a good time to buy.

Over the last year, the pound has seen gains of approximately 7% against the euro and the dollar. Matching the currency of the property and the debt can offer some protection against exchange rate movements and if the pound continues to strengthen, the monthly cost and balance of any local currency loan will fall.

In addition, the European Central Bank (ECB) recently cut rates to a record low (from 0.25% to 0.15%) and this will mean that mortgage pay rates will fall over the coming months.

Fixed rates are extremely attractive as borrowers can choose to lock into these historically low rates. However, they are not available in every country and may have early repayment charges. Switzerland offers fixed rate products up to a maximum of 15 years and US mortgages are frequently fixed for 5 years plus.

In France, long-term fixed rates can be arranged for 20 years or even longer and start from as little as 2.80% over 15 years.

Mortgage finance depends largely on location of the property and is always full status. Interest rates tend to be determined by how competitive the local mortgage market is.

In Spain, for example, there are fewer lenders willing to consider nonresidents and products are limited – most usually simple variable trackers with comparatively high spreads. On the plus side, these rates are coming down.

As banks pass on their cost of borrowing to the borrower, Portugal is also a challenging market and there has been a serious issue with one of their main lenders, Banco Espirito Santo. Therefore the impact of the cut in rates does not translate into mortgage options in equal measure in each country in Europe.

Research in advance is vital to know what your mortgage options are and to work out how far your budget extends. Before you visit a property you can obtain a decision in principle from a lender or specialist broker confirming the amount you can borrow and the terms currently available.

A decision in principle is not binding and is subject to the valuation of the property, but can put a potential buyer on an equal footing with a cash buyer.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. CHANGES IN THE EXCHANGE RATE MAY INCREASE THE STERLING EQUIVALENT OF YOUR DEBT.

There will be a fee for mortgage advice. The precise amount will depend upon your circumstances and loan amount. We estimate that the fee will be 0.67% of the amount borrowed.

This articles has been provided by Andrew Nolder, Associate Director and by Miranda John, International Manager of SPF Private Clients Limited.