If you’ve always wanted to own a property abroad, whether to live in as your main residence, as a second home or to rent out as an investment this article will give you advice on how to finance a property abroad. The way to your dream home is closer than you think.
What are the main ways to finance a property abroad?
There are several options to explore to finance your property abroad once you’ve decided to buy. Everyone’s situation is different – you may be lucky enough to have enough cash to buy a property outright, or you may need to take out a mortgage. Your main options can be to:
- apply for an overseas mortgage with a UK bank
- apply for a mortgage with a bank in the country you wish to buy in
- use a mortgage broker specialised in international mortgages
- release equity from your existing home
- purchase in cash
Let’s look at each of these in more detail.
An overseas (international) mortgage with a UK bank
Several UK banks offer an international mortgage service, meaning you would borrow in sterling. This is known as a foreign currency mortgage as the amount is paid in a currency different from the one of the country you are buying in. You may find that it’s easier to get a mortgage in the popular locations in Europe, such as France or Spain, while finance for a property in a more unusual area may be more difficult.
Banks with offices in a foreign country, such as HSBC and Barclays, are used to dealing with international banking. UK banks with offices abroad can also assist you with setting up a bank account abroad and offering home insurance and other financial advice. If your UK bank does not have an international branch it is unlikely they will give you a mortgage for a property abroad.
The benefit of an overseas mortgage is that you will be dealing with your finances in your own language, so you’ll understand the process. Many people feel much more comfortable doing this as buying a home abroad is such a major purchase.
A mortgage from a bank abroad
With interest rates being so low in much of Europe, a mortgage with a foreign bank is another option to look into. You may find you get a better deal than with a UK bank, but you should be aware of interest rate fluctuations.
Applying for a mortgage at a bank abroad can be a fairly simple process, particularly if you already have an account with the bank. You will need to prove your income and give details of expenditure when making the application. Every country has different criteria for mortgage offers, which will also consider your personal circumstances. Once you have a provisional offer it’s important to wait for the mortgage offer in writing before you make an offer on a property.
Once you have an offer in writing, get your lawyer to explain everything to you in detail so you don’t get any nasty surprises later on. Unless you are fluent in the local language, it’s also a good idea to employ the services of a legal translator to explain the mortgage offer and other paperwork involved in the purchase of your property abroad.
Deposits on European properties tend to be higher than those in the UK, on average around 20-30%, so be prepared to pay this and the set-up costs when you buy abroad.
Using a mortgage broker
An overseas mortgage broker is a specialist in foreign mortgages and may either be based in the UK or the country you are moving to. They will shop around for the best mortgage for your circumstances, similar to a broker you use when applying for a UK mortgage. This takes the stress out of you having to search for the best mortgage.
A broker should give you independent advice and assist you with applying for the mortgage. They can also help you release equity from a current property to fund a new one.
This can be a good solution if you don´t have the time to compare the different mortgages available, as the broker will have instant access to lenders. They will also speak English so can answer any questions you have.
Releasing equity to buy abroad
If you already own a property in the UK or overseas and it has equity in it, you could refinance it to pay part or all of the cost of the new property. This can be a good way to raise the money you need to buy abroad, especially if you don´t want to take out a large mortgage.
If you choose this route, you will be remortgaging, so you should be aware of the new interest rate and payments, as these could be different from what you currently pay.
Remember that properties can fall into negative equity during a financial crisis, meaning you could owe more to the lender than the value of the property.
The good news is that property prices in the UK are currently increasing, which may give you more equity than you thought.
Buying a property abroad with cash
If you have the funds from the sale of a property or savings, then you won’t need to worry about borrowing.
You will still need to account for the costs of buying the property, which include:
- transfer fees if moving sterling to a foreign country
- taxes and legal fees
- the cost of a translator/interpreter
It is cheaper to transfer money abroad using a currency transfer company rather than a bank as these companies are specialists and offer competitive rates.
Do your homework and find the best deal for you from a *reputable company such as Lumon, Wise, Currencies Direct or Moneycorp.
If you use an international bank account linked to your bank account in the UK, you might be able to transfer currency at a cheap rate or even for free up to a certain amount.
Bridging finance for a property purchase abroad
You may need to obtain a bridging loan to ‘bridge’ the time between the sale of a current property and the purchase of the new one. International bridging is a short-term solution that lends you the money to purchase your property abroad.
You can arrange this through an international bridging loan specialist in the UK and it will be agreed for a set amount of time (from days to months). Once your property sale goes through the balance of the loan will be paid and you will start to pay your new mortgage.
This is a useful way to purchase a property if you’ve found your dream home but haven’t been able to sell your UK property yet. It can also be a good way to buy a property abroad if the market is moving fast abroad and properties are selling quickly or your overseas property is in a prime location. In some European countries, you lose the deposit if the sale falls through, so this is a way to secure the property you want.
When applying for a bridging loan make sure you are aware of the interest rate and whether it is flexible or fixed. Some companies will allow you to add the interest to the end of the loan, so you pay less for the duration and the interest is paid when the bridging loan ends.
Buying an investment property abroad
If you plan to buy a property abroad to rent out as a long-term investment or as a holiday home, you will have to declare this when you apply for the mortgage. This may affect the type of mortgage you are offered. If you plan to use the property for visits for yourself or your family for part of the year this can be taken into account.
You will also have to pay tax on any rental income you receive, but you can offset the running costs of the property against this. In these circumstances, it is advisable to talk to a local tax advisor to ensure you make maximum profit from your investment.
Note that each situation is personal. Contact a financial expert. He or she will give you the best advice for your situation.
Something to be aware of is that your local iad Overseas advisor* will assist you in your administrative and legal procedures (acquisition of a tax identification number, translation of documents…) and will speak your own language.
Learn more about with our article: the 6 tips to buying abroad
- A mortgage abroad can be cheaper than a UK mortgage.
- A mortgage broker can find the best mortgage to suit your financial situation.
- Rental income must be declared to the tax authorities.