With the continual on-going crisis with Covid-19 (which is not only affecting the UK market), I have also carried out some initial investigations into how the economic problems are affecting clients who already own overseas properties, such as a holiday/investment or future retirement home.
Although each country will have its own set rules/interpretations of how they will deal with each client on a case by case basis, it should be noted:
Lenders will be unlikely to negotiate, as they do not want to be put in a similar position to the last worldwide economic crisis where they were left with many repossessions, which resulted in a collapse of their local property market
The cost of chasing a bad debt can be both costly and an administration burden
It is recognised that for many clients this is a temporary financial problem that should be hopefully resolved before the end of this year, as the world markets slowly recover
Examples of feedback I received from some of the most popular second home-owning countries are as follows:
FRANCE
In France, the government has not forced the banks to defer mortgage payments. At present, it is only an obligation on business/commercial lending.
Some banks are prepared to consider deferring mortgage commitments on a case by case basis.
Clients should check their mortgage offers because some banks allow clients to defer one payment each year, subject to a maximum number of times over the term of the mortgage.
If a client does not have the capacity to make payments, then an application can be made for an ‘out of policy decision’ by clarifying their current economic and business circumstances for the bank’s consideration. However, there is no guarantee the bank will accept and currently they are not obliged to do so.
ITALY
In Italy mortgage contracts normally have a clause that enables a 12-month holiday.
The first step borrowers should take is to review the clause and their eligibility and, if appropriate, make the request to their bank to activate. This applies regardless of the borrower’s nationality.
It has recently been announced that British and other non-Italian nationalities can possibly renegotiate their loans – especially where they started a loan years ago at higher rates. Assistance from a specific Italian lawyer could help negotiations and increase the chances of success.
PORTUGAL
The majority of banks are currently only providing holidays for primary home-owners, as requested by the Portuguese government.
At this time, there is no defined information on holiday/second home-owners.
SPAIN
Generally speaking, payment holidays are not available for second homes in Spain as they are not covered under the recent changes in the law.
Banks are asking clients to exhaust all options in their home countries first and, if necessary, they will then assist if the client is still unable to meet the repayments.
However, banks will take a view on a case by case basis as they do not want more bad debt on their books.
Some banks, for example, will allow interest-only for a period. Other banks are offering other forms of credit in order to bridge the short-term lack of income, but this really is looked at case by case with each situation and each lender.
Take a look at our Spanish mortgage calculator here to see how much you might be able to borrow. Then complete our Overseas Mortgage Enquiry Form for an indication if you may possibly be able to get a mortgage for a property in Spain, how much you may be eligible to borrow and at what rates.
USA
Only government-backed loans, such as Fannie Mae, Freddie Mac, FHA and VA, are guaranteed to receive assistance with payment holidays.
As the vast majority of foreign national mortgages are for 2nd homes or investment properties, they are not eligible for this relief and it is down to each individual lender or service provider as to what they can offer.
Some lenders may offer a payment holiday for 1 or 2 months, but nothing beyond that. Some lenders are offering no assistance at all.
ConclusIon
Taking all the feedback above, it still may be worth contacting your lender in each country/jurisdiction for an up-to-date local position. Each institution/bank manager can often make their own decisions based on the current and future overall financial position for both you and the bank.
In conclusion, Covid-19 as both a virus and its impact on financial and economic markets, is changing daily. Advice given today could be out of date within a few weeks.
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