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Foreign Currency Mortgage
Foreign Currency Mortgage
Foreign Currency Mortgage |
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Buying a property overseas is nowhere near as daunting a prospect as it used to be. There is now a
well established UK advisory and financial market that can be tapped into for advice and finance to
make the acquisition abroad relatively straightforward and safe. So what are the options for how to finance your overseas purchase? Clearly, if you have cash available then all you need to do is find an effective way of converting this into the relevant foreign currency and transferring this out in settlement of the purchase price and fees as they fall due. There are many forex companies specialising in this area and offering competitive exchange rates. You can also forward purchase your funds to take advantage in what you see as sterling strengths. The reverse of this process allows you to repatriate any letting earnings or sale proceeds when you see sterling as weak versus the foreign currency of your house. Amongst the internet sites offering exchange and wire transfer services are www.moneycorp.com and www.currenciesdirect.com. Some of these sites have the capability to trade foreign exchange or engage in spread betting. This is an advanced and high risk activity and should only be engaged in by those confident in their knowledge of the relevant markets. However, it does offer the opportunity for significant gains, or losses. Most UK based lenders will look for the mortgage they offer to be on non-commercial property and not for land. That means that they will be looking to mortgage a finished building or one with a reputable builder with a strong record of delivery. This market has taken a considerable hammering as a result of the global credit crunch and banks are taking a stronger line on to whom they will lend and the terms available. For example, deposit levels required to secure a mortgage have hardened. Some lenders will now look for a 50% deposit for property in popular areas such as Nevada in the US or in Dubai. Other, more established and less challenged areas will be subject to a 30% deposit. All will look for the mortgage to be in either the local currency where the house is being acquired or that of your principal income. This provides some safeguard that income will be received to match liabilities and that you are not overly exposed to significant changes in currency values over time. For example, the US dollar has fluctuated from $2.12 to $1.36 to the pound in 18 months. Such a large variation can make a considerable strain if not hedged or matched. Most lenders will provide mortgages in hard currencies such as US dollars, Euros and Sterling. Other currencies such as Australian, New Zealand, Hong Kong and Singaporean Dollars are also available. Other stronger currencies are readily available – those for smaller countries may need financing through their domestic providers. Mortgage applications can be lengthy. Offer letters can take an average of 4-6 weeks to be received after application for some markets; up to 8 weeks for a purchase in the US and up to 12 weeks for France, Spain and Portugal. Therefore, planning ahead is an essential part of your purchase process and not suited to impulse buyers! In these days of lower interest rates, mortgages can still be obtained for up to 5 times main salary or joint income (if you are buying with someone else). The real risk with financing overseas is the currency variations that can add significantly to the cost if not adequately matched to income. Historically, Euro based interest rates have been lower than sterling rates – although the Euro has strengthened considerably during the last 12 months. When selecting the type of mortgage, fixed rate deals for long periods are much more common overseas. However, these do carry lock in provisions and sometimes prevent early settlement without paying large penalties. If you believe that you may want to make lump sum contributions in the future to pay down your mortgage, make sure that you have the ability to do this when you apply at the outset. With the large number of UK buyers in international markets over the past 20 years, most markets are well used to dealing in English for the sale and advice process – but the legality of contracts usually means that these are concluded in local language and subject to title laws that may be unfamiliar to you. Therefore, it is essential that you get proper legal advice from those qualified to practice in the market in which you plan to buy. This can be sources at home or, with some research, in the buying country. |