How to finance your dream home abroad
If you have decided to purchase an overseas property in France, Spain or elsewhere abroad, there are likely to be a number of finance options available to you. Shop around and speak to an independent financial expert who can help you find the best product to suit your needs. There are some mortgages that allow you to switch currencies during the term, depending on which is most favourable at the time.
A few years ago, many people took advantage of the low interest rates in euro zone countries by taking out a ‘euro mortgage’. However, since the value of the euro against the pound has risen dramatically, this has left many people hugely out of pocket.
Avoiding exchange rate fluctuations
Most experts will advise you to take a mortgage in the same currency that you earn. This will mean that you are less exposed to exchange rate fluctuations. If you have a rental income from the property then a mortgage in the local currency may be feasible as you can use that income to service the monthly repayments.
How do you know if your rental income will cover your mortgage? Unless you go for a property with a guaranteed yield, you don’t! You can make an estimate based on local research, but you must also consider what you will do if there is a shortfall. Will you be able to cope financially? Also, what if circumstances such as interest/exchange rates or your income changes over time?
Always have a back-up plan!
For your deposit, or if you are buying outright, currency exchange specialists will be able to help you to get the best rate on your lump sum.
They can advise you on when to secure your currency and potentially save you thousands of pounds. With some firms, you can secure currency rates for a fixed period.
Borrowing in the current financial climate has become more difficult and often lenders will offer a lower LTV (loan to value) to reduce their risk. However, this very much depends on which country you are buying in. In France, for example, you may still be able to find mortgages for up to 90%.
Finally, never be tempted to spend more than you can comfortably afford. There are so many stories out there of people who have fallen in love with a ruin, spent double their budget on it and regretted it forevermore…
About the Author
This article was contributed by Charlotte Walker, who writes for Towergate Insurance on a number of property related topics, including holiday home insurance.
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