Foreign currency mortgages can be used for one of two purposes:
Buying property
Mortgage for your home in the UK denominated in a foreign currency.
Buying A Property Abroad
So, youre looking for or maybe have already found - that idyllic bolt-hole across the Channel or villa or flat in the sun that you've always dreamed of, now what do you do?
We have teamed up with Conti, one of the Uk's leading overseas mortgage specilaists, to ensure that our clients have a first class service if they are looking to purchase or re-finance an overseas property.
Well, first of all, we strongly recommend that you seek the advice of a lawyer (more about that later), and then contact The mortgage monkey we can advise you on the best way for you to pay for your new pad.
Some Food for Thought
The most important thing to remember is that buying a property in another country can be (and nearly always is) a very different experience to what you may have been used to over here. This is why The mortgage monkey recommends that you seek GOOD legal advice, either from a UK based lawyer with experience of this type of purchase or from one based in the country in which you want to buy, who speaks English (and whose staff do!), and who also has experience of dealing with international clients.
Here are just a few examples of how things can differ:
The cost of buying abroad is often a lot higher than in the UK, particularly in Portugal, Spain, Italy and France, where you can end up paying 10 or 15 percent in estate agent fees, legal charges, mortgage registration fees and VAT.
The ongoing expense of maintaining the property - utility bills, service charges, community and local rates can be just as expensive as in the UK. France and Spain also have various wealth taxes based on the value of your property.
In France you have to make a potentially non-refundable 10 percent deposit at the point the sale is agreed, so expert legal advice is crucial to ensure that the correct clauses are inserted into the initial agreement document to make sure you don't lose the deposit if the sale falls through.
Under Spanish and Portuguese law, any debts on the property you buy automatically pass to you when you complete the sale. This can include debts relating to any previous mortgage on the property, making it essential that the legal work is done thoroughly.
Vendors in the Mediterranean countries in particular, usually incorporate a large portion of bluff into the asking price and if you don't go in with a sufficiently low offer, you may end up paying over the asking price. Negotiation is key, be prepared to haggle!
Paying for your Holiday Home
Assuming that you dont have the cash to pay for the property outright, there are two main ways to finance the purchase of a property abroad:
Providing that you have enough equity, you could take out extra borrowings against your home in the UK by taking a further advance on your current mortgage or by remortgaging.
You could take out a separate mortgage on your holiday home with a lender based in the country in which youre buying, and in the local currency.
Some things to be aware of if taking out a foreign currency mortgage abroad:
The most important thing to remember is that exchange rates can be volatile. If the Pound strengthens against the currency of your mortgage, you could be laughing, but on the other hand, if the Pound weakens, you could end up taking a hit. So, you need to make sure that you dont leave yourself too vulnerable in this aspect dont bite off more than you can chew!
The headline interest rates in many countries, particularly in the euro-zone and perhaps the USA, are currently quite a bit lower than in the Bank of England Base Rate. However, it should be borne in mind that British lenders tend to work on much smaller margins than foreign lenders, so the difference to you as the borrower might not be as much as you had first thought.
Most European lenders will also take into account your UK mortgage debts and other outgoings when considering your application. Spanish lenders won't lend to you if your existing loan repayments amount to more than about 35% of your income.
In many countries, lenders work on a lower loan to value ratio than in the UK (typically, this could be a maximum of 70 or 80%, compared to anything up to 100% in the UK). So, be prepared to have a reasonable sum of capital to put down.
There are very few foreign lenders who will allow self-certification of income, which can in particular effect borrowers who are self employed.
Letting laws in many foreign countries are much more heavily biased in favour of the tenant than they are in the UK. Consequently, there can be something of a reluctance among lenders to grant mortgages on properties which are going to be commercially let out. On the plus side, most lenders dont have a problem if you plan to let family and friends use the property when youre not there, as an occupied property is considered less of a risk than an empty one.
A growing number of UK and Irish lending institutions are also offering euro mortgages, sometimes out of offices abroad.
Sure, buying a property abroad and possibly with a foreign mortgage is a very different experience, and probably takes a bit more work than buying somewhere over here. But just think life would be dull without the odd challenge here and there. The mortgage monkey will help you through it all, and when its all done and dusted, youll be sitting there with a glass of something nice, admiring that fantastic view, (hopefully) not thinking about work.ahhh!
Mortgage for your home in the UK denominated in a foreign currency.
One of the most common reasons that people take out this type of mortgage is that theyre paid in a foreign currency. As your mortgage is often one of your biggest financial outlays each month, it makes a degree of sense to have your mortgage in the same currency as your wage or salary, as it reduces the effect of any exchange rate fluctuations.
Other people who are paid in Sterling, might want to take out a mortgage in a mainstream foreign currency as a way of potentially paying off their mortgage quickly. Taking out a foreign currency mortgage in this instance can be very risky and should only be considered if you are able to shoulder potentially sizeable increases in your mortgage payments.
The plus side of a foreign currency mortgage:
If Sterling increases in value against your mortgage currency, your payments will become cheaper. Alternatively, you may choose to keep your payments at the higher level, thus having the effect of paying off your mortgage much quicker and saving on interest charges. An example of this happened in 2000 when, over a ten month period, the value of the Euro declined by 10% against Sterling. People who already had Euro mortgages before the decline, saw the size of their mortgages reduce accordingly.
Many foreign banks offer deals with interest rates fixed for relatively long periods compared to UK lenders. Its not unusual to get fixed rates for 5 to 15 years or even 20 years in some countries.
The minus side of a foreign currency mortgage:
If Sterling decreases in value against your mortgage currency, your payments will become more expensive. If you get a situation similar to Black Wednesday in 1992, where Sterling went from a long-time high to an equally long-time low literally overnight, the effect could be disastrous.
Due to the potential for exchange rate volatility, it is unlikely that any lender will work on a loan to value ratio any higher than 75%
Remember, the larger your foreign currency mortgage, the greater your exposure to the fluctuations in exchange rates.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Changes in the exchange rate may increase the sterling equivalent of your debt.
The FSA does not regulate foreign mortgages.
Foreign mortgages are not arranged via Sesame.
If we charge a fee for arranging a contract for you, the amount payable will be based on 0.35% of the value of the loan applied for, with a minimum of £500. In a small number of circumstances, it may be necessary for us to charge a higher fee. This will be agreed with you in writing prior to any chargeable work commencing.