The recent banking crisis may have unleashed some major turbulence on the UK mortgage market, but overseas mortgage providers still have a healthy appetite for lending to foreign investors. And it appears that the Brits’ love affair with overseas property is very much alive and well. According to the recent Holiday Lettings’ Insights Report, a quarter of us are considering investing in a holiday home, with Spain being the second most popular location being enquired about by prospective holiday let buyers, after the UK.
And Rightmove Overseas reported record traffic in January, with more than 2.8m searches performed on its website, representing a 76% uplift on the same period last year.
Perhaps that’s why so many brokers are tapping into this market and considering it seriously as a new source of revenue. We’ve been signing up an average of 70 intermediaries a month since last summer, bringing the grand total to more than 8,000.
There are plenty of British buyers who are more willing to explore overseas opportunities in their search for better investment potential than they’re seeing in the UK property market. And with a recent Mintel Research report revealing that one in three Brits is now contemplating emigration, there are also many people who are planning to retire abroad or to live permanently overseas.
It’s also crucial to remember that although some of your clients may already own property abroad, they may not have considered remortgaging, or even thought it necessary.
The current property hot spots are actually the old favourites. Based on the enquiries we receive, France is top of the list, followed by Spain. Interest in both locations has increased considerably over the last three years, as investors continue to stick to locations they know and trust. Turkey and Portugal are still popular too, while interest in Australia and the USA has also been creeping up recently.
Due to its financial system having been cautious in the past, the French mortgage market has remained very calm throughout the global downturn. Loan to value ratios remain pretty high, and it’s quite normal to borrow between 70-90% of the value of a property. Recent reductions across a range of mortgage deals mean that France currently offers the widest range of finance options and best available rates in Europe for UK buyers, with rates starting from just over 2%.
In Spain, mortgage availability is surprisingly good. Dogged by various scandals and lumbered with a glut of unwanted property, it’s fair to say that many prospective buyers have been more than a little put off. But with prices dropping by up to 50%, and with mortgage rates from just 3%, it’s a buyers’ market. You can generally borrow around 65-70%, but smaller deposits are possible in areas where house prices are more resilient, such as the Balearics, the Canary Islands, Madrid and Barcelona.
In Turkey, it’s possible to borrow up to 80%, and considering that the country didn’t even offer mortgages until 2007, availability is generally very good. Tourism has risen dramatically over the last few years, making rental yields very lucrative. In Portugal,
you can still generally borrow up to 70%, and although lending is currently more restricted, I expect this to start improving soon.
Euro or sterling?
An increasing number of investors are opting for euro-denominated mortgages. This allows them to benefit from European interest rates, and the fees on some euro loans can also be substantially lower than on some Sterling mortgages. Generally speaking, I always recommend that an overseas mortgage and the income used to service the mortgage repayments are in the same currency, thus avoiding exchange rate issues.
Due to current exchange rates, a mortgage could even be a good idea for clients who think they don’t need one. Their immediate exposure to currency fluctuations is much lower than if they’re paying by cash, as they’ll only have to exchange the money for their deposit and fees for now. If they’re lucky enough to be a cash buyer, it may be appropriate to arrange a mortgage for them until sterling becomes stronger, at which point they can pay it back, and ultimately reduce the price they pay for the property.