Top 5 Tips for Financing Property Abroad

Tip 1: Apply to the right lender

There are three elements to ensuring that a mortgage is successfully secured in your country of purchase:

1. Finding a product that is available for your particular property type
2. Finding a product that is available given your specific circumstances and available documentation
3. Finding a product that meets your requirements

The mortgage applied for must be able to tick all three boxes otherwise the application will be a waste of time. For example, not all lenders in a given country will offer the type of mortgage that you may be looking for or for your particular type of property and would therefore need to be avoided. In addition, each lender within a country can often use slightly different underwriting criteria meaning that whilst your particular circumstances could correspond to the criteria required by one lender, they may not be accepted by another. It is important to seek advice on this before ploughing ahead with an application to avoid time wasted with lenders whose criteria you do not fit.

Tip 2: Know your priorities/requirements

Once you have ascertained, with the help of an experienced mortgage adviser, which lenders would offer finance given your circumstances, the next step is establishing which product offered by one of these lenders is the 'best'. In order to choose the 'best' deal, it is a good idea to rank the following elements in order of importance to you:

• Mortgage amount - are you relying upon securing a certain mortgage amount or can you remain flexible?
• Interest rate - would you prefer to take a smaller mortgage amount in order to secure a lower rate?
• Mortgage term - do you want the longest mortgage term possible in order to reduce your capital repayment mortgage monthly payments, or would you prefer to take a shorter term in order to repay the mortgage as quickly as possible? There are some lenders that will offer lower rates for shorter terms.
• Mortgage type - do you require an interest only mortgage to keep monthly payments low, or would you prefer a capital repayment mortgage in order to reduce your debt and pay less interest in the long-term?
• Early repayment charges - do you intend to repay the mortgage either partially or in full during the term of the mortgage? It’s worth bearing in mind that some lenders charge early repayment penalties in the first few years, even for variable rate products. Most lenders will charge an early redemption fee during the whole term of the mortgage for fixed rate products.
• Life insurance - in some countries it is compulsory to take life insurance cover. In this case, would you prefer to arrange your own life insurance policy (allowed only by a small number of lenders) or are you happy for the lender to arrange this for you (the norm)? Once the above categories have been ranked by importance, it will be easier to compare the mortgage options available and to select the product that best meets your needs.

Tip 3: Don't only compare headline interest rates

It is important to compare the overall cost of each proposed product and not be tempted to simply compare the initial rate of each mortgage. The rates displayed in ‘Best Buy Tables’ for example are not necessarily the rate that will be applicable for the entire mortgage term and do not reflect the true overall cost of the mortgage.

Overseas mortgage products often include a discounted initial rate for a limited period. When comparing these initial rates some products will appear much more attractive. However, if you dig a little deeper you will see that the margin that will be used to calculate the interest rate after this discounted rate period makes the overall rate, used during the whole mortgage, much higher than other products.

This does not matter if the borrower intends, and can, arrange a re-mortgage once the discounted initial rate expires but in many countries it is very expensive to remortgage and therefore borrowers should choose a mortgage product with a long term view, unlike in the UK where remortgaging is common practice.

Tip 4: Also consider the costs of arranging the deal

It is important to factor in the cost of arranging the mortgage. The standard mortgage arrangement fee charged by overseas lenders is 1% of the mortgage amount. This is a one-off payment that is usually taken with the first monthly instalment. Some lenders will add this fee to the agreed mortgage amount, as is common practice in the UK, however most lenders don’t. Most overseas lenders also charge valuation fees and some charge ‘processing fees’ and these are up-front, non-refundable fees.

Tip 5: It can be better to choose a product on customer service rather than rate

There is normally little difference in the rate/conditions between the mortgage deals offered by the lenders in any one foreign country. A difference in interest rate of 0.25% can often make a difference on only a few pounds to the monthly payment and therefore it is often beneficial to consider the level of service you will receive from each bank in order to decide between them. Your Finance Consultant will be able to advise you on which lenders should be avoided if possible due to their lack of customer care or speed with applications for example. They will also be able to make you aware, using their past experience as an example, of which lenders it may be worth paying a little more to in order to deal with competent, helpful advisers in the future. This is important when choosing between foreign lenders as you need to be able to trust the people with whom you are banking.