A mortgage overseas for properties abroad

Most people looking at properties for sale abroad need to obtain financing for their purchase. This is something you must think carefully about as decisions you make at this stage of buying properties abroad can have implications regarding inheritance, tax and the cost of your property. One such decision you must make is whether to take a mortgage abroad or in the UK.

Get a mortgage overseas before making an offer for properties abroad

You should get a mortgage offer before you start looking for properties abroad. Buying properties abroad always poses an element of risk, so before you even start looking at properties for sale abroad you must think of how you can minimise this risk. Taking a mortgage overseas eliminates the risk of your UK home being repossessed, but you must weigh this up with other advantages/disadvantages of the two options.

Advantages of a mortgage overseas when buying properties abroad

You may find that interest rates are lower than in the UK, meaning you will be able to afford more expensive properties for sale abroad. In Europe, interest rates are normally tied to the EURIBOR, which has been lower than Bank of England rates for the past few years.

Each country differs in respect to how much banks will lend you for properties for sale abroad but it will depend upon your net monthly income. As a rule of thumb, the repayments on your mortgage overseas should not exceed one-third of your income.

If you are renting out properties abroad then you may be able to reduce your overseas tax bill by offsetting the cost of the mortgage against income received. A mortgage overseas may also be able to reduce the net value of your properties abroad, significantly reducing the inheritance tax payable upon death.

A mortgage overseas will be secured on properties abroad and therefore your UK assets will not be at risk from repossession in the event of defaulting on the loan.

Disadvantages of a mortgage overseas for properties abroad

Deposits for a mortgage overseas tend to be higher than for a UK mortgage (LINK). A figure of 20%-plus would be common and may leave you with a shortfall to be found elsewhere. There is also likely to be higher set-up costs with a mortgage overseas which add 2 to 3% to the cost of properties for sale abroad.

The range of available mortgages overseas is still limited in comparison to the UK and if you are going to repay the mortgage overseas from your UK earnings you will be exposed to major currency risk. This can dwarf the potential savings on interest payments because of wild fluctuations.

Your individual circumstances will dictate whether a mortgage overseas or in the UK will be best for you. Remember that buying properties abroad means huge financial commitments and think carefully about what type of financing is best for you before viewing properties for sale abroad.