British lenders financing purchases in Spain

In a recent article in thisismoney.co.uk it has been reported that British lenders are allowing property owners to re-mortgage their UK properties to fund property purchases abroad. To date this has been common amongst Scandinavia clients, but it is a positive sign to see British lenders doing the same. But the article is also a bit of a PR piece, I have tried to only include the salient points below. For the full article you can find a link at the bottom.

Europe is facing economic meltdown but the crisis hasn’t deterred British buyers from snapping up properties in Spain.

Italy, Greece and Bulgaria are also attracting British buyers seeking a bargain. But wherever you are buying, the advice is the same – do your homework to avoid pitfalls.

Mortgage funding
One of the effects of the global banking crisis has been that mortgages are more difficult to secure and borrowers must put down a bigger deposit to get a loan from banks overseas.

The growing debt crisis in recent months, particularly in Greece and Italy, has exacerbated the problem. A number of Greek banks have stopped lending for the time being.

Spanish and French banks will lend to those with only a 15 or 20 per cent deposit, but this could be tightened if the financial crisis takes a further turn for the worse in Europe.

Conn says: ‘Historically, European banks have been more conservative than their British counterparts. Britons applying for overseas funds will need a chunky deposit and must provide all relevant paperwork to show income and liabilities.’

Some British lenders allow homeowners to remortgage to fund a holiday home purchase abroad, but it will depend on individual criteria and borrowers will usually still have to have significant equity in their British home, even after they have released the funds, to qualify. For many, an overseas mortgage will be the only option, but rates in Europe and the US are competitive.

Frank Kyle, 32, an engineer in the oil industry, got a bargain when he bought his new holiday home in Murcia, south-eastern Spain, but he had to put down a bigger deposit than he had planned. Frank, from Glasgow, paid 112,000 euros (£97,500) for the two-bedroom property on a popular golf resort and he is confident he bagged a bargain. His neighbour in Murcia paid 170,000 euros for a similar apartment five years ago.

He had hoped to secure the apartment with just a five per cent deposit, but he paid closer to 40 per cent, securing a mortgage from a Spanish bank. Frank’s 4.5 per cent variable loan rate makes his monthly repayments about 378 euros (£326). Almost all banks now require borrowers to take capital repayment rather than interest-only mortgages.

Frank Kyle, 32, an engineer in the oil industry, got a bargain when he bought his new holiday home in Murcia, south-eastern Spain, but he had to put down a bigger deposit than he had planned. Frank, from Glasgow, paid 112,000 euros (£97,500) for the two-bedroom property on a popular golf resort and he is confident he bagged a bargain. His neighbour in Murcia paid 170,000 euros for a similar apartment five years ago.

He had hoped to secure the apartment with just a five per cent deposit, but he paid closer to 40 per cent, securing a mortgage from a Spanish bank. Frank’s 4.5 per cent variable loan rate makes his monthly repayments about 378 euros (£326). Almost all banks now require borrowers to take capital repayment rather than interest-only mortgages.

‘I am often away on oil rigs and ships, so I have never bought property in Britain,’ he says. ‘I’m hoping to get out to Murcia at least four times a year. Hopefully, I’ll get my golf handicap down to single figures.

‘My plan is to hold on to the apartment long term so I’m not worried about short-term dips in prices or the volatile euro. I may be working for a French company soon too and it will pay me in euros, which removes the currency risk on repayments.’

Watch out for the currency risks
For many British buyers a euro loan will present currency risk if they are paid income in sterling. This is something buyers must bear in mind, particularly in the current uncertain economic climate.

Most overseas mortgages, like Frank’s, are also on a variable rate and not fixed, so buyers must be aware that monthly repayments could rise.

Typical mortgage rates in Spain and France are between three and four per cent variable. But the rate offered will always finandepend on a borrower’s circumstances.

Exchange rate changes are a cause for concern, especially for those about to make a large transaction. But buyers can lock into a rate ahead of a property purchase.

Full article

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