Financing your overseas property purchase

You’ll need to navigate a raft of different schemes

Financing an overseas property purchase requires a clear plan, lots of information and time to research and reflect on the financial, legal and investment implications of a particular property in a particular country.

Typically you will have one of two choices. Do you obtain a local mortgage in the country where you are buying, or do you borrow in sterling from the UK?

Opting for the option to choose a mortgage abroad can open you up to a raft of different schemes which vary considerably between countries. In Europe alone, there are major differences with Cyprus, Portugal, Spain and the UK offering mortgages in a variety of major currencies, while in Italy and France they are available only in euros.

It may make sense to think about getting a mortgage in that same currency if you plan to rent your property out and earn income in a foreign currency. Many Western European countries tie their mortgage base rates to the Euro Interbank Offered Rate (EURIBOR). This has been good news for British buyers as EURIBOR rates have traditionally been low and stable.

Set up costs, however, are higher and lenders abroad will rarely take into consideration potential rental returns when calculating your income.

The main downside to borrowing in a foreign currency is the potential for exchange rates to move against you. All overseas property buyers will have to open a current account in the local currency where they have bought to cover utility bills and local taxes and so currency risks of some sort are all part of buying abroad.

It is important to remember that emerging countries rarely enjoy the same degree of stability or reliability as the UK property market, and very few impart the same level of legal protection.

There are also often political or legislative issues operating in another country that a UK investor might be completely ignorant about, but these issues could severely affect the security of a particular purchase.