What is an international mortgage?

What is an ‘overseas’ mortgage?

An overseas or international mortgage is a mortgage for a property that’s not in the UK.

You might consider taking out an overseas mortgage if you’re buying a holiday home, retiring to sunnier climes or buying your first property overseas because you can’t afford to buy in the UK.

You can arrange an overseas mortgage through a UK bank or an international lender. It can also be possible to raise the funds to buy a home abroad outright by remortgaging your UK property.

Here, we explain the pros and cons of each option.

Borrowing from a UK bank to buy overseas property

Some of the main UK high street banks have international mortgage services, but you’ll need to find out which countries they operate in.

Banks tend to only provide mortgages for purchases in countries where they have offices.

While getting a mortgage in established overseas property markets such as France or Spain might be simple, obtaining finance can be trickier if you’re looking further afield.

Although the mortgage may be set up through the UK bank, you will deal with the foreign arm of the bank once the mortgage has been arranged.

Arranging an overseas mortgage abroad

It’s possible to arrange a mortgage with an overseas lender using a specialist broker. These brokers can give you tailored information, including a list of estate agents or lawyers to use in your chosen country.

Mortgage rates in some areas of the eurozone may be lower than in the UK, so you might get a better deal by borrowing abroad.

However, overseas mortgage brokers are not covered by the Financial Conduct Authority, so you would struggle to get any compensation if you were given poor advice.

You should also consider the repercussions of borrowing in a foreign currency. If you do so, exchange rate fluctuations will affect your repayments.

Remortgaging your UK home to buy an overseas property

Remortgaging your UK home can help you raise the funds to buy an overseas property outright.

Whether this is a sensible option for you will depend on your personal circumstances – including how much of your existing mortgage you’ve paid off and your current credit rating – as well as factors such as interest rates at the time you apply.

• Find out more: remortgaging to release equity from your home

Buying an overseas property

Whether you’re buying a holiday home or an investment property, it’s important to do your research and learn about the country’s rules and regulations for overseas buyers.

Finding a property

There are several ways to find a home overseas:

• UK property portals and estate agents: Online property portals such as Rightmove, Zoopla and OnTheMarket have overseas sections that you can browse. In addition, some high-end national estate agents such as Hamptons International, Knight Frank and Savills sell and provide advice on overseas property.
• Estate agents overseas: You can visit local estate agents in the area you’re looking to buy in, or track them down through trade bodies such as the Association of International Property Professionals (AIPP). Local agents might be able to give you the inside track on the best places to buy, but you should always remember that they’re working for the seller.
• Overseas property exhibitions: Property shows can be a useful place to find out about destinations abroad and meet developers and financial advisers. If you’re thinking of buying a new-build home from a developer, take independent advice to ensure the contract is water-tight and guarantees that you’ll get your money back if the developer goes bust.

Deposits on overseas property

The deposit needed to buy an overseas property tends to be higher than you’d need for a standard UK mortgage.

In Spain, for example, it’s common for overseas buyers to pay 30%-40% of the property price as a deposit.

In some countries the deposit is non-refundable, so don’t hand over any money before you’ve negotiated an initial contract, and then only to a lawyer or bonded estate agent.

Timeshares

Timeshares give you the right to live in a property for a set period each year.

This can be much more affordable than buying a holiday home, especially if you’re not planning to spend much time abroad each year.

Timeshares have been given a bad name by some businesses using aggressive and misleading sales practices. This has led to some investors being saddled with high fees and unable to recoup their money.

If you’re considering buying a timeshare, ensure you have the contract vetted by a solicitor before proceeding.

Legal implications of buying an overseas property

The legal implications of buying abroad depend on the country you’re buying in, but it’s important to be aware that the rules are likely to be significantly different from those in the UK.

For example, some countries will limit which areas foreign buyers can purchase a property, or require you to apply for a licence if you want to rent the property out. You might also be required to appoint a notary to oversee the transaction.

In all cases, it’s essential to employ an independent lawyer (with no link to the developer or agent), who has an in-depth understanding of the property law in the country where you’re buying.

Tax on overseas property

Again, tax obligations vary from country to country, so it’s important to take independent advice on your obligations.

If you’re letting a property out, you’ll need to pay tax on your rental income, and if you sell it, you might need to pay capital gains tax.

The exact implications will depend on the country’s rules and whether it has a double-taxation agreement in place with the UK.

• Find out more: tax on overseas property