24 Jan As Brexit Looms Closer Will It Affect Overseas Mortgages?
Overseas mortgages are one of those financial products that we’ve all heard of, but probably don’t know all that much about. Most us may even have friends that hold an overseas mortgage, as the British continue their love affair with France and Spain. The “big referendum” has certainly not dampened interest in the European property market and the demand for overseas mortgages has certainly not dried up.
Understanding Overseas Mortgages
An overseas mortgage is a mortgage that is held by a UK resident and secured on a property outside of the UK. The property could be almost anywhere. Most overseas mortgages held by UK nationals are in the EU. Receiving an offer on an overseas mortgage is a bit of a paradox. It’s the same but different. The lenders, as always, are interested in the two main criteria. Affordability and the property that the mortgage is secured upon.
The most common route taken by UK nationals to obtain an overseas mortgage is to remortgage their current home in the UK. This will then pay a substantial deposit on the foreign property that they wish to purchase. When a foreign national buys a property in Europe two factors are a common thread. Lenders demand higher deposits and the interest rates are usually lower than in the UK.
While the UK remains part of the EU, favourable terms will be available for citizens of the common market. There is, however, much uncertainty being expressed over what lies ahead. Property professionals, brokers, agents, and lenders seem to think that little will change.
Interest in the market seems to have escalated since the infamous Brexit vote. It’s almost as if there has been a bit of a last minute rush. There are a number of UK families that see themselves relocating before Brexit takes place.
UK banks can and do provide mortgages outside of the UK. If they have an office in that country, then it is perfectly possible for them to lend in that country. That does not mean that they will offer the same terms as they might in the UK. Borrowing abroad also doesn’t mean that the lender is subject to the regulations as laid out by the FCA. High street lender or not.
It is likely that local lenders where you want to purchase a property will be able to offer you a better deal. Specialist brokers will help you to find the best available deal. The terms may be even more favourable than those you would get with a UK lender. Across the Eurozone, there are countries that have much lower interest rates.
The rush for EU property has been fuelled by the motive to obtain fixed favourable terms for overseas mortgages extending beyond the departure of the UK from the EU. That, however, is only part of the story.
Property professionals are optimistic. Most believe that little will change and that the financial relationships will continue much as before. There seems to be little advantage for either side to sever the ties that bind. It is probable that UK nationals will still enjoy some free movement and that Britain may well remain part of the EEA.
Currency and Exchange Fluctuation
Factors such as currency exchange may have the greatest influence on overseas mortgages. The pound took a downturn shortly after the referendum. This took a few property purchasers by surprise midway through a deal. When the homeowner is paying the mortgage in sterling, currency fluctuations will influence affordability. This is something that both the lenders and the borrower must consider carefully.
Considerable strengthening or weakening of the currency used to purchase the property will also influence the long-term return on the property. Buying a property abroad may seem to be an exercise in borrowing money to make a purchase. Considering how much the property will be worth on completion of the mortgage is something that some fail to consider.
There will always be hoops to jump through when funding a property purchase in a country where you don’t live. There are always options to achieve a good funding deal to suit your circumstances. Belgravia Property Finance can offer specialised advice and help to broker deals that are not available on the high street. Contact Belgravia Property Finance for a confidential discussion on the way forward.