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I am thinking of buying a property abroad. Do I need to arrange an independent valuation?
If you are arranging a mortgage secured on the property then the bank will carry out its own survey. This is normally for its own purposes to check that the property has no obvious valuation and structural problems. It is unlikely that the surveyor will report on potential legal problems as this is normally undertaken by a separate independent lawyer.
Therefore, it could still be beneficial to arrange a separate valuation to cover more in-depth details concerning the property. These could include a more detailed structural report, title searches and checks on the boundary, drainage and utilities.
If you are not arranging a separate mortgage then it is important to arrange an independent valuation to carry out all of the above (including the parts a bank’s valuer has undertaken). A surveyor would also identify if it is legally built and has planning permission. They would also advise on whether the property is in an area that could cause concern for future sale, for example, the location.
More information can be found here.
If I am self-employed and working outside of the UK, what documentation would I require to purchase a property in Western Europe (for example France, Spain, Italy or Portugal)?
We will be looking for at least the last three years trading accounts. These should ideally be audited by an international firm of accountants, as lenders prefer this type of practice to have verified a trading history, rather than a locally-based firm of accountants.
The company/business should have been trading for at least five years, with at least three years’ profitable accounts. You are defined as self-employed if you hold more than a 20%-25% shareholding (please note, some lenders define 20%+ as a controlling director, others 25%+).
Lenders base their calculations on your net personal income after tax and if dividends are drawn they must be seen to be on a regular annual basis and not just drawn out of the business for other capital expenditure, including purchasing the overseas property.
Any information provided should be in English, as it is a common language between ourselves and the lending sources. If a company has traded at a loss at any time during the last three years, this will make it very difficult to arrange additional lending, unless there is a good explanation from the company’s/business’ accountant explaining why the loss has occurred.
Please be aware that in Europe lending will not be possible if there has been any form of adverse credit, such as county court judgements or defaults. Also, rental income is not normally taken into account as part of the calculation of affordability (although in France, there may be exceptions with some lenders).
On the plus side, if a business pays for a personal expense such as a car loan, then this debt will not normally be taken into account when evaluating how much you can borrow.
If I’m purchasing a property in Spain, would a lender consider an application if I have adverse credit?
It is doubtful, as lenders in Europe are very concerned with applicants who have any sort of bad credit issue. They are unlikely to consider an application even if you have only had one missed payment or a County Court Judgment.
If you are concerned, it may be beneficial to apply for your own personal credit report from a credit agency such as Experian www.experian.co.uk or Equifax www.equifax.co.uk before applying for a mortgage.
I am thinking of building a property abroad. What do I need to initially consider regarding possible financing and the purchase/build?
The number of people who want to build their own home overseas is on the increase.
Firstly, check with an independent lawyer and surveyor regarding the ownership of the land and legalities of building there.
Secondly, the land needs to be purchased and registered in your name – it is unlikely lenders will assist towards the cost of the land, so ensure you have the financial resources to cover this stage of the process.
Thirdly, you then have to arrange for the full planning permission and building/habitation licenses to be granted (and cover the cost of these being approved from your own resources), noting that lenders prefer that any works carried out are undertaken by a local builder.
The percentage of the cost of the build that will eventually be covered by a lender will depend on a number of factors, including the overall expense of the whole project, the value after the works have been completed and your total personal financial position – taking into account both the new and any existing personal debt.
I’m thinking of buying a property on an island. Tell me about the pitfalls.
Many people are attracted to living on an island as they think it will be quieter. However, property prices can be higher as there is a limited supply. This can cause friction between locals and holidaymakers as they are priced out of the market.
It can sometimes be more difficult for foreign nationals to buy a property on an island as restrictions may be in place, for example in the Caribbean, and lending rules can be more restrictive in an attempt to put people off buying unless they have a higher deposit.
On the mainland you may get a higher loan to value rate and growth could be higher than on an island. Also, planning laws may be more restrictive as there is less land to build on, so do not bank on being allowed to extend your property.
I’m thinking of purchasing a property in Greece. How easy is it to get finance?
It is very difficult for a number of reasons, including the general economic situation, as it is perceived by lenders to be poor and therefore there are concerns about investing in that market. However, please note there are selected lenders who may take a view on properties of €2 million and above.
Property values are low and still falling in some areas and buyers must be aware that there is unlikely to be any growth, although you may get good rental returns in Rhodes, Corfu, Crete and other popular areas of Greece.
Another negative is that the country could eventually withdraw from the euro, which could cause currency issues.
I need to complete on a property purchase in France as soon as possible but do not want to get caught out. What advice can you give me?
There are conditions and cooling off periods when you sign a sales contract and if you are applying for a mortgage there are additional cooling off periods. These, combined with the legal process, could result in you exceeding the date of completion, so you need to be careful.
In France, you should allow at least 6-10 weeks to complete on a property and if you are applying for a mortgage, this could further delay the process if the lender is waiting for support documentation, valuation reports and a subsequent mortgage offer.
Timescales in other countries can vary and it is advisable to check with your independent lawyer regarding any other complications they envisage before you commit to signing any sales contract. Do your homework first!
I’m considering buying a property in Spain. Do I need to get it valued?
Yes. Despite some people believing it is not necessary to get a valuation – it is. If the property is new, you will need to check that it has it been constructed properly with all the correct licences. If it is an older property, it could cost you in the longer-term if you do not check for any possible defects. Check whether any guarantees have been provided and that they are valid and up to date.
If a bank is lending against the property, find out if they have carried out a survey and what type, to ensure it will protect you both. You may wish to arrange a personal survey for peace of mind.
If it is a new property, the foundations must be of a sufficient depth. Unscrupulous developers may build properties on poor soil, use sub-standard building materials or build in dubious locations, such as flood plains, or too close to nearby cliffs. An independent valuation will reveal any problems.
When applying for a mortgage, which areas could be problematic – in no particular order?
- Insufficient deposit – check with the lending source the maximum loan to value
- Not allowing for additional setting up costs – ie government taxes and legal costs
- Down valuation of the property
- Legal/planning issues concerning the property
- If you are employed, gross salary too low – ie some lenders have minimum income required
- Gross salary after tax too low to cover both existing and new debt
- Personal expenses too high when calculated as a percentage against earnings
- If self-employed, net personal income is too low over an average of the last three years
- Turnover fluctuating too much between profit and loss
- Turnover and profit decreasing each year, with no projection of an upward turn
- Past bad credit – ie defaults and county court judgements
Can you give me some basic information about the lending criteria and application process for popular European countries?
It is very important to mention that all applications are subject to a client’s personal financial status and the valuation of the property. The affordability is on a case-by-case basis, as we look at a client’s overall existing earned income and liabilities.
It should be noted that although there is no restriction from a lender to renting a property, a client should check locally with their lawyer whether any local licenses/permissions are required for this purpose. Any rental income received will not be taken into account for the overall mortgage calculation.
I am considering purchasing a property in Spain or France. What costs am I likely to incur on top of the normal purchase price?
In France, expect to add approximately 10-12% of the purchase price. In Spain, expect to add approximately 12-16% of the purchase price.
These costs cover government taxes and legal costs, but we strongly advise you to check with an independent lawyer in each country to get a full breakdown of what should be expected. Please note that arranging a mortgage on the property can also increase some of the above costs.
I’m considering purchasing a residential property in Greece and may require a mortgage. Is this possible?
At this time, due to their past/present economic problems, I have not found any retail/ lending sources for Greece unless the purchase price valuation is over €2 million when international private banks may be able to assist, subject to your personal financial status and valuation of the property.
I am thinking of building a property overseas. Is it easy to raise the finance on the land, or will a bank only assist with the construction costs?
Normally, a lender will require you to purchase the land from your own resources, then obtain all the relevant planning permissions and building/habitation licenses required before they will consider assisting with the cost of constructing the property. Some lenders will offer up to 100% of the construction costs, while others will consider a percentage of the final valuation after the property has been constructed. You should also take into account that lenders prefer a locally-based registered architect or builder to be involved in the construction, rather than using overseas companies.
I am thinking of purchasing a buy-to-let property abroad. Can the rental income be taken into account when calculating how much I can borrow?
In most instances, the answer is no. Rental income cannot be used as part of the mortgage calculation. Lenders will only consider earned, pension and in some cases, investment type income. If you are going to rent a property, please also check on the local rules for that country, what is permitted and whether any local licenses are required.
I’m looking to purchase abroad and raising a mortgage on the property. As well as the deposit and the cost of borrowing, what other costs should I be expecting?
You should check with your local independent lawyer to establish the potential other costs that could be required as these do vary from country to country. But as an example, in France you should allow for 10% to 12% of the purchase price to cover government taxes and legal costs, while in Spain this could be higher – up to between 12% and 16%. These costs can sometimes be higher because there are higher taxes/legal costs when arranging a mortgage to enable a lender to take the relevant property as security.
As a UK applicant, will it be more difficult to get a mortgage in, for example, France, Italy, Portugal or Spain post-Brexit?
At this time, there are no indications that lenders will penalise a British applicant post-Brexit. For example, they do not currently offer different lending terms to Norwegians or Swiss-based applicants who are already residing outside of the EU.
I am leaving my current job to start a new occupation in another country. What additional information will an overseas lender require when considering a mortgage application?
- Is there a probationary period with the new job, as the majority of lenders will not consider an application until that period has finished?
- Are you continuing your career in the same type of business/occupation, as some lenders could require at least 12 months’ experience in that new field of work before they consider an application?
- Is the new job on a permanent or temporary/rolling contract basis, as this can cause problems? Lenders will look at your long-term employment history with this type of work and will definitely require a copy of your latest CV and new employment contract.
- Will you continue with any existing loans/mortgages in the UK? Some lenders do not take into account any rental income you will receive on existing properties when calculating how much you can further borrow.
I have recently been made redundant and am considering relocating to France. I plan to live off the redundancy money and rental money I will receive from my existing UK property, which still has a mortgage in place. Will I be able to apply for a mortgage in France beforehand?
French lenders will require at least sufficient earned or pension income to evaluate how much you can borrow to purchase a property in France. They will not take into account the rental income received (as this is not guaranteed), but will take into account any existing liabilities i.e. your mortgage repayments.
On a case by case basis, investment income can be considered, but it will depend on the amount invested, where it is invested and the yield being obtained. If you do eventually gain employment in France, the majority of lenders prefer you to have been employed for at least 12 consecutive months and have no probationary period remaining.
I am considering purchasing a property overseas and possibly require a mortgage. Is there anything I should consider if I am turned down for a mortgage?
It is worth considering adding the words “subject to an acceptable mortgage offer” (or similar wording) to any sales contract you sign.
This wording should also be added before any deposit is paid to try and ensure this deposit is refunded should a mortgage not be forthcoming. This could be because of a legal problem with the property or down valuation, as well as personal financial reasons. Please check with your independent lawyer regarding the most applicable wording that will apply to the country where you are purchasing.