What is an 'overseas' mortgage?
An overseas mortgage is a mortgage for a property that's not in the UK.
You might consider taking out an overseas mortgage if you're buying a holiday home, retiring to sunnier climes or buying your first property overseas because you can't afford to buy in the UK.
You can arrange an overseas mortgage through a UK bank or an international lender. It can also be possible to raise the funds to buy a home abroad outright by remortgaging your UK property.
Here, we explain the pros and cons of each option.
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Borrowing from a UK bank to buy overseas property
Some of the main UK high street banks have international mortgage services, but you'll need to find out which countries they operate in.
Banks tend to only provide mortgages for purchases in countries where they have offices.
While getting a mortgage in established overseas property markets such as France or Spain might be simple, obtaining finance can be trickier if you're looking further afield.
Although the mortgage may be set up through the UK bank, you will deal with the foreign arm of the bank once the mortgage has been arranged.
Arranging an overseas mortgage abroad
It's possible to arrange a mortgage with an overseas lender using a specialist broker. These brokers can give you tailored information, including a list of estate agents or lawyers to use in your chosen country.
Mortgage rates in some areas of the eurozone may be lower than in the UK, so you might get a better deal by borrowing abroad.
However, overseas mortgage brokers are not covered by the Financial Conduct Authority, so you would struggle to get any compensation if you were given poor advice.
You should also consider the repercussions of borrowing in a foreign currency. If you do so, exchange rate fluctuations will affect your repayments.
Remortgaging your UK home to buy an overseas property
Remortgaging your UK home can help you raise the funds to buy an overseas property outright.
Whether this is a sensible option for you will depend on your personal circ*mstances - including how much of your existing mortgage you've paid off and your current credit rating - as well as factors such as interest rates at the time you apply.
- Find out more:remortgaging to release equity from your home
Buying an overseas property
Whether you're buying a holiday home or an investment property, it's important to do your research and learn about the country's rules and regulations for overseas buyers.
Finding a property
There are several ways to find a home overseas:
- UK property portals and estate agents: Online property portals such as Rightmove, Zoopla and OnTheMarket have overseas sections that you can browse. In addition, some high-end national estate agents such as Hamptons International, Knight Frank and Savills sell and provide advice on overseas property.
- Estate agents overseas:You can visit local estate agents in the area you're looking to buy in, or track them down through trade bodies such as the Association of International Property Professionals (AIPP). Local agents might be able to give you the inside track on the best places to buy, but you should always remember that they're working for the seller.
- Overseas property exhibitions: Property shows can be a useful place to find out about destinations abroad and meet developers and financial advisers. If you're thinking of buying a new-build home from a developer, take independent advice to ensure the contract is water-tight and guarantees that you'll get your money back if the developer goes bust.
Deposits on overseas property
The deposit needed to buy an overseas property tends to be higher than you'd need for a standard UK mortgage.
In Spain, for example, it's common for overseas buyers to pay 30%-40% of the property price as a deposit.
In some countries the deposit is non-refundable, so don't hand over any money before you've negotiated an initial contract, and then only to a lawyer or bonded estate agent.
Timeshares
Timeshares give you the right to live in a property for a set period each year.
This can be much more affordable than buying a holiday home, especially if you're not planning to spend much time abroad each year.
Timeshares have been given a bad name by some businesses using aggressive and misleading sales practices. This has led to some investors being saddled with high fees and unable to recoup their money.
If you're considering buying a timeshare, ensure you have the contract vetted by a solicitor before proceeding.
Legal implications of buying an overseas property
The legal implications of buying abroad depend on the country you're buying in, but it's important to be aware that the rules are likely to be significantly different from those in the UK.
For example, some countries will limit which areas foreign buyers can purchase a property, or require you to apply for a licence if you want to rent the property out. You might also be required to appoint a notary to oversee the transaction.
In all cases, it's essential to employ an independent lawyer (with no link to the developer or agent), who has an in-depth understanding of the property law in the country where you're buying.
- Find out more:retiring abroad
Tax on overseas property
Again, tax obligations vary from country to country, so it's important to take independent advice on your obligations.
If you're letting a property out, you'll need to pay tax on your rental income, and if you sell it, you might need to pay capital gains tax
The exact implications will depend on the country's rules and whether it has a double-taxation agreement in place with the UK.
- Find out more: tax on overseas property
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Get advice nowI have extensive knowledge and expertise in the field of real estate, particularly in the realm of overseas mortgages. My experience spans various aspects of property transactions, financing options, and legal considerations related to buying property abroad.
Now, let's delve into the concepts mentioned in the article:
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Overseas Mortgage Definition: An overseas mortgage refers to a mortgage taken out for a property located outside the UK. This is often pursued for reasons such as buying a holiday home, retiring abroad, or making a first property purchase overseas due to affordability issues in the UK.
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Sources for Overseas Mortgages:
- UK Banks: Some major UK high street banks offer international mortgage services, usually limited to countries where they have offices.
- International Lenders: Borrowers can also arrange overseas mortgages through international lenders.
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Borrowing Options:
- UK Bank Option: Although set up through a UK bank, the dealings with the mortgage are often managed by the foreign arm of the bank.
- Overseas Mortgage Brokers: Specialized brokers can assist in obtaining mortgages abroad, providing tailored information and guidance on local professionals like estate agents or lawyers.
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Remortgaging for Overseas Property:
- Remortgaging a UK property can be a means to raise funds for purchasing an overseas property outright.
- Feasibility depends on personal circ*mstances, including existing mortgage status, credit rating, and prevailing interest rates.
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Research and Property Acquisition:
- Finding a Property: Various methods, including UK property portals, estate agents, and overseas property exhibitions, aid in locating properties abroad.
- Deposits: Deposits for overseas properties are often higher than those for standard UK mortgages. Specific caution is advised regarding non-refundable deposits.
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Timeshares:
- Timeshares grant the right to live in a property for a set period each year, providing an alternative to buying a holiday home.
- Caution is required due to past aggressive sales practices; legal vetting of contracts is recommended.
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Legal Considerations:
- Legal implications of buying property abroad vary by country. Differences in rules, restrictions on foreign buyers, and the need for a notary are highlighted.
- Independent lawyers, without ties to developers or agents, are crucial for navigating foreign property laws.
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Tax Implications:
- Tax obligations differ across countries, requiring independent advice.
- Rental income and capital gains tax may apply, influenced by the specific rules of the country and any double-taxation agreements with the UK.
In summary, this comprehensive overview provides insights into the intricacies of obtaining an overseas mortgage and the associated considerations when buying property abroad. If you have further questions or need more detailed information on any specific aspect, feel free to ask.
