Women are becoming increasingly active as buyers in the overseas property market according to one leading mortgage broker. Over the last few months, Savills Private Finance has seen an increase in the number of women are buying property overseas. For some women, an overseas property is a bolthole or holiday home whereas for others the aim is to provide a rental income. The Euro zone remains popular, especially France and Italy.
In the last year, some countries have seen an increase in the number of mortgages available whereas others haven’t experienced much of a change. Miranda John of Savills Private Finance says that there is no uniform overseas property mortgage market with some countries having a healthy supply of mortgage finance and others having very few active lenders.
– Banks can now have different lending criteria in certain areas. What this tends to mean is that the level of deposit you require and the interest rate and margin you can expect to obtain will vary.
SAVVY TIP: In Spain and France lending can be very different even though they are both part of the Euro zone.
– Spain is a far more fragile economy. Over the years vast numbers of new build property, mainly apartments, have flooded the market.
SAVVY TIP: A number of local scandals involving illegal building permits compounded the problem leaving Spain with a massive over-supply of property (some questionable) and many cases of half-built property where the funding to finish works has disappeared.
– In France the lending market has been more stable. The property market has fallen but little has it changed in terms of lending. The deposit required is one of the lowest in Europe but the margin (the difference between the rate the bank borrows at and the rate it lends at) has increased.
SAVVY TIP: The good news is that because base rates are so low borrowers are still enjoying relatively low interest rates.
Miranda John from Savills says that for many buyers a local Euro mortgage can make sense for the following reasons:
– Euro zone interest rates are at an historic low. As many experts believe the Euro will weaken further, buyers do not wish to convert sterling into Euros on the current exchange rate.
SAVVY TIP: By taking a local mortgage only the deposit is converted on today’s rate and the loan can be paid off at a future date when a more attractive exchange rate may be in play.
– Tax planning. In many instances it may be worth having a mortgage against the property, either if you are planning to rent it out or to minimise the impact of any ‘wealth taxes’ that may be imposed. This is one to take advice on.
SAVVY TIP: In the UK it is common practice to release money from property as and when you wish (equity release, further advance, second charge etc) but that’s not the case in Europe, so if you buy a property in cash but then decide you would like to take out a mortgage in a year or two’s time, it may not be possible to find a local lender who will do this.
Lending in the Euro zone used to vary hugely from the lending available in the UK. Affordability has always been the key – and now the UK has moved much closer to this model.
– Understand how your income will be assessed. Lenders typically allow a third of your monthly income to cover all monthly repayments on your debts (e.g. mortgages, loans and rent) and the new monthly repayment on your overseas property.
SAVVY TIP: If you meet the criteria, the maximum loan to value allowed tends to be around 60% in Spain, although you can get away with a much lower deposit in France – from 20% or less.
– All loans are will need proof of income and spending. The lender will need to see payslips, P60s, tax returns, banks statements etc.
SAVVY TIP: For locals in France and Spain repayment (capital and interest) loans are the norm and banks have always felt these are more appropriate for second property owners. Interest-only mortgages are available but in Spain only for limited periods – normally a maximum of five years – and in France you have to meet additional criteria in terms of your financial position.
In some countries, particularly Spain, it’s possible to get a mortgage from the developer. There are pros and cons.
– There may be higher loan-to-value limits. Developer mortgages can lend up to 80% of the property’s value.
– The fees and costs may be lower. If the mortgage is transferred from the builder to the buyer you may save money on fees.
– A bank will do more independent checks. Clare Nessling from brokers Mortgages Overseas explains: “Developer mortgages can work for some people but we would urge caution, particularly around the valuation.”
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