Can UK buyers get a mortgage for a property abroad?
In the aftermath of the global credit crunch, it became harder to borrow money, and an era of cheap and often loosely controlled borrowing came to an end.
But nearly two decades on, the mortgage landscape in Europe has evolved, and the good news is that loans are now available for foreign buyers in countries that did not previously offer them.
It is also refreshing to report that mortgage rates, at the time of writing, are lower in your favourite European holiday home destinations than in the UK. Currently, 5.6% is the average rate fixed-rate borrowers might expect in the UK, but in Europe it's often below 4%.
Against that backdrop, we're seeing more buyers taking out small mortgages, especially in Spain, because it's often a prudent financial decision to leverage. Here we look at why, and what you might expect in our six most popular countries.
Why should you get a mortgage for an overseas property?
There are several advantages to taking out a mortgage. The first is that you might not wish to tie up or exhaust your life savings in the purchase of your home.
TV house hunters Mandy and Mick took out a 40% mortgage when buying a home for their new life in Spain for this reason. The requirement to show financial resources for the first five years of a Non-Lucrative Visa is also something to consider.
Taking out a mortgage also means you might be able to afford a more expensive property, rather than compromise on space or location – a decision you might come to regret if a full-time move is on the cards.
Having a mortgage approved on a property usually involves more checks and balances, providing a little extra reassurance, albeit with some additional administration costs.
There are other reasons too. First, there is the currency advantage. If you buy a property when sterling is relatively weak against the euro, you might wish to limit your exposure by taking out a mortgage and repaying it early (depending on any early repayment charges) when the exchange rate improves significantly.
You may also be able to reduce the amount of tax you pay, as outstanding mortgage debt can be deducted from the tax liability on your asset in some countries. If you rent your property out, mortgage interest may also be a tax-deductible expense.
Which countries are best for overseas mortgages?
Spain
Spain has to be top of the list, thanks to its mature mortgage market, wide choice of lenders and competitive rates. According to A Place in the Sun Mortgages, rates in Spain are around 17% lower than the Eurozone average.
At the time of writing, Spanish residents can expect rates between 2.5% and 3.5%, with loans covering up to 80% of the property's value.
Non-residents should expect rates between 3.2% and 4.5%, with borrowing of around 60–70% of the property's value.
France
France has stricter rules for non-residents. Non-EU buyers typically require a 30–40% deposit, and household debt must not exceed 35% of gross monthly income.
Fixed-rate mortgages are currently around 3.5–4.25%, although many lenders require a minimum property value of around €150,000.
Portugal
Mortgage availability has improved in Portugal, with rates typically ranging between 2.8% and 3.5%.
Cyprus
Mortgages are now available for non-residents through lenders including Eurobank and Bank of Cyprus.
Rates are typically around 3–4.5%, with loan-to-value ratios of 60–70%.
Greece
Mortgages are available to non-residents, although lender choice is more limited.
Borrowers can typically expect loan-to-value ratios of 50–65%, with interest rates around 3–4.5%.
Italy
Italy also offers mortgages to non-residents, although lender choice is relatively limited.
Maximum loan-to-value ratios are generally around 50–60%.
Looking for a mortgage in Spain?
A Place in the Sun Mortgages is a partnership between A Place in the Sun and Mortgage Direct, offering specialist mortgage advice for buyers in Spain.
The team works with the main lenders in Spain and can help you understand how much you may be able to borrow, the rates and terms available and what you'll need before starting an application.
For non-residents, mortgages of up to 70% of the purchase price or valuation (whichever is lower) may be available, subject to eligibility and affordability.
Find out more about A Place in the Sun Mortgages
Considering financing your overseas property?
Whether you're buying a holiday home or planning a permanent move abroad, getting expert mortgage advice can help you understand your borrowing options and budget with confidence.
