According to Rightmove Overseas, more than 611,000 individual visitors used its website in July to search for their dream overseas property, with Spain and France still top of the list and beachfront properties in Europe the hot favourite for those searching for their idyllic overseas home.
While this is positive news, many people still assume that buying a property abroad will be similar to buying one in the UK, including the whole mortgage process. This is not the case.
It’s crucial that the right advice is sought and that clients are guided through the whole process with care. Here are some common mistakes which you can help them to avoid.
Accepting the first mortgage deal offered
Someone who’s found a property might feel under pressure to sort out the financials as soon as possible. Even those who’ve been thinking about it for some time can find themselves in a panic, but this doesn’t mean they should accept the first offer they receive. At the very least, they might not have been offered the best possible rate.
Mortgages products and lending criteria can be very different depending on which country you’re buying in, and every borrower’s needs are different too. In order to secure the best possible deal, it makes sense to approach a specialist broker who has relationships with a number of lenders, knows the exact mortgage application requirements, and can advise on the most favourable lending rates.
Committing to more than they can afford
It’s very easy for clients to focus all their attention on the property, as they often think that it’s the first part of the buying process. The first stage should actually be about establishing affordability. An 'Approval in Principle' will do just that – it’ll tell them exactly how much they can borrow and what price range they can realistically consider. It will also put them in a much better position with agents and developers, proving to them that they’re a serious buyer, and they’ll be better placed to negotiate price with the vendor. And it costs nothing!
Ignoring the implications of currency fluctuations
A big decision is whether to take out a sterling or foreign currency mortgage. Many people just go for whatever offers the best rate, without considering the implications of their repayments increasing if exchange rates move the wrong way. The choice often simply depends on what your client intends to do with the property itself. So if they’re planning to rent out their property in France through a French agent, a euro mortgage makes sense, as the rent received (in euros) can be held in a French bank account to service the monthly mortgage payments, thus avoiding fluctuations in exchange rates.
Relying on rental income to pay the mortgage
An increasing number of people are renting their overseas properties out to holiday makers as an extra source of income, or to help with mortgage payments. But clients must bear in mind that foreign lenders will not rely on potential rental returns as security for a mortgage during the application process.
There are some areas where the rental markets are particularly strong, but this can never be taken as a given. Sudden changes, such as a low-cost airline deciding to withdraw a particular route, demonstrate just how fragile rental markets can be. The bottom line is that unless someone can afford the mortgage repayments without relying on rental income, they shouldn’t buy the property.
Not factoring in all the additional costs
Prospective buyers should bear in mind that bills don’t end at the asking price. Lawyer's fees, IVA, local and national taxes, and insurance, must all be met in their host country. And anyone taking out a mortgage needs to consider not just the immediate monthly costs, but also the associated bank and broker fees, arrangement fees and early repayment penalties. There may be life assurance costs too.
