Overseas Property Mortgage: Full Guide for 2024
Many UK-based investors find it challenging to secure favourable mortgages on overseas properties. The process involves several potential hurdles, from language barriers and tax rates to the legal and administrative systems of the country where the property is located.
However, investors have several options to simplify financing overseas real estate. So whether you’re looking to purchase a holiday home, an investment property for your child’s studies abroad, or a retirement destination, read on for our guide to buying real estate abroad.
State of the Market
Overseas real estate investments proved problematic in 2023, as higher interest rates increased borrowing costs and dampened investor sentiment. This trend is expected to reverse if foreign investors and institutions return to the market, as the European Central Bank has signalled it will cut interest rates.
Properties across continental Europe attracted €65.2 billion of investment in 2023, according to Savills insight. Most of these investments came from intra-European cross-border buyers, mainly targeting properties in France and Spain. While less than half of the investment (40%) originated outside of Europe, the lowest share since 2010.
Overseas Property Finance
Investors seeking their next residential mortgage for their dream home or buy-to-let property in Spain, France, or beyond have several options, including:
Overseas Mortgage From Your Local Lender
A foreign mortgage can be arranged directly with banks and building societies that offer international banking services. Choosing a lender in your home country can have several benefits:
- You can communicate in your native language
- The mortgage process may be faster due to credit history access
- Your credit score from your home country may improve your chances of getting mortgage approval
The financial institution you work with must support the country or territory where you purchase a property. Also ensure they understand the distinct procedures, legal safeguards, and laws governing foreign ownership, taxes, exchange rates, planning permits, exit plans, and insurance.
It’s also crucial to work with a lender with demonstrable experience in foreign transactions and a knowledge of local legislation. Ensure the local attorney you choose to work with is licenced to practice domestically and internationally and has experience with cross-border real estate transactions.
Overseas Lender Mortgage
Another option is to obtain a mortgage from an international lender through a foreign bank or a specialised broker. The benefits of working with an overseas lender include:
- They often have a deeper understanding of local laws and the mortgage market
- They can provide access to a broader range of mortgage deals, potentially leading to lower interest rates
Securing a mortgage abroad can be time-consuming for non-residents, who may also have to pay higher interest rates. Your mortgage payments will likely be in a foreign currency if you obtain a loan from a foreign lender. So the strength of your domestic currency compared to the foreign currency can impact the value of your money. However, this can be advantageous if you can handle currency exchange rate fluctuations.
Finally, if you opt for an overseas lender, you should engage your independent lawyer and translator to safeguard against potential fraud issues.
Release Equity From Other Assets
Another option is to release equity from other assets to finance overseas property. Equity involves the money you would receive from selling a property after paying off your mortgage. For example, if your mortgage balance is €1 million and your home is valued at €4 million, your equity would be €3 million.
Releasing equity is a great way to gain access to finance to purchase a property overseas. However, it’s crucial to carefully consider the consequences. Compound interest, earned on many equity-release mortgages, may mount up quickly unless paid on time. Also, when you release equity, you may receive less than the market worth of your property.
Securing A Deposit
Lenders typically require a deposit or downpayment of at least 20%, but a higher deposit may be necessary with an overseas mortgage. For example, non-residents may need to provide a deposit of between 30% and 40% of the property price in Spain. Therefore, if a villa costs €2 million, you may need up to €800,000 as a deposit.
It’s important to note that deposits for non-residents may be non-refundable in some countries. As a result, it’s imperative to be entirely satisfied with the purchase and have all required inspections completed before proceeding.
Tax Obligations on Overseas Property
Different countries have different tax duties, so it’s essential to gain independent advice to fully understand your responsibilities. Most of the time, you must pay taxes on the rental income you receive from renting your property. When you sell the property, capital gains tax can also apply.
The precise ramifications rely on the tax laws in the nation where the property is located, such as agreements against double taxation with the UK. It’s crucial to keep up with the tax laws in all applicable jurisdictions and consider these issues when managing your property.
Secure Your Dream Overseas Property With Hectocorn
Purchasing real estate in foreign countries can be challenging, but you can simplify the process of buying your dream home by working with Hectocorn. We have extensive experience assisting ultra-high-net-worth individuals from diverse backgrounds with overseas mortgage applications.
Our team of mortgage brokers is dedicated to understanding your financial circumstances and long-term goals. We secure the best possible overseas mortgage agreements based on your existing portfolio and specific needs. At every stage of the transaction, we operate as your partner to troubleshoot any complications, secure the most favourable terms, and pair you with the most appropriate lender.
To learn more about the process of buying real estate abroad and how Hectocorn can help, contact us at [email protected].
