The benefits of taking out a mortgage on an overseas property

People often ask me about the benefits of taking out a mortgage on an overseas property and I do believe there are many positive reasons for researching this option before considering other alternatives.

If a client is borrowing against their main home, it means they are combining all their borrowing into one asset. They may find that if they try to raise the finance against their existing main residence it could affect any benefits they already have with their current mortgage, especially if there are high redemption penalties and additional set up costs.

You may be surprised to find that, in some countries, the lending terms offered are better than can be arranged for buyers in their home country. It is also spreading the risk if their financial circumstances or plans change in the future.

By arranging a mortgage secured on the overseas property, the proposed lender should carry out its own legal and valuation checks on the property a client wishes to purchase to ensure it is suitable security and that there are no underlying problems that have not been highlighted by the seller.

Also, if it is a brand new property, the buyer should make sure that the bank lending against the property is independent of the development they are purchasing in.

Over the many years, I have been involved in the overseas property market, I have come across a number of cases where people have rushed into purchasing the property by using cash from their own resources and these include:

• properties with incorrect or no planning permission

• no habitation licences – which results in not being able to get local utilities such as gas, electricity and water

• new properties being built with either poor materials and/or foundations not dug deeply enough to ensure ongoing stability, especially if the property is located in a hot climate and a clay soil.

When it comes to currency exchange implications, renting out an overseas property and receiving the payment in the local currency may also assist clients to repay the overseas mortgage, especially if the mortgage is taken out in the same currency.

Meyrick Green from currency specialists Moneycorp said: “Fluctuating exchange rates can make predicting the amount of money a client receives difficult when making an international payment. Using rental income to service the currency mortgage can mitigate some of this risk. That being said, when making regular currency payments there are solutions available to reduce the cost of the transfer, as well as to lock-in the exchange rate over a period of time. Moneycorp’s Regular Payment Plan is one such method.”

Although taking a mortgage out on a foreign property can sometimes be quite time consuming, it is possible in some countries to get pre-approved before agreeing to purchase the property concerned.

It could also be beneficial for the buyers to instruct their own independent lawyer expert in the country where they are purchasing to check any contracts that they have been requested to sign, especially if it is in a foreign language or has not been translated properly into English (where applicable).

It is also important before signing any purchase contract that it is ‘subject to mortgage finance.’ This will assist buyers to recover any deposit paid if they do not eventually qualify for an overseas mortgage, if the relevant lawyers have detected a legal anomaly or if there is a valuation issue.