Broker involvement with overseas mortgages
The number of UK citizens seeking to buy property overseas continues to increase as a result of a variety of factors, including the expansion of globalisation, the growth of the EU, wider travel experiences, cheaper travel options, better investment opportunities than at home or the simple desire for a perceived better quality of life overseas.
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Not surprisingly, brokers based in the UK are increasingly looking at the possibilities of tapping into this escalating market, as such involvement outside of traditional home-based business activity is a potentially lucrative income stream.
However, this is not a decision to be taken lightly, as venturing into the overseas mortgage market can be fraught with difficulties if caution isn’t taken – each country presents a myriad of national and local laws, customs and language barriers that may put off all but the brave.
A different animal
The overseas mortgage market is completely different from the UK market and the differences need to be recognised and understood if a broker is to provide a good level of service for their client. Managing client expectations regarding the mortgage process is key. For example, when a client signs up for a mortgage on an overseas property, they may expect the process to be similar to that in the UK. Not so. While the front end administration may be similar, this is only the start of what can be a long and complicated process if it is not managed properly, and for that to happen it is vital brokers truly understand the lender administration requirements for each country.
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Clients will be looking to brokers for help and advice regarding all the paperwork and additional requirements when taking out an overseas mortgage, which is no surprise as this is completely alien to most. Therefore brokers need to be prepared to spend more time guiding their clients through the overseas mortgage process and this will involve being drawn into more areas such as whether a foreign currency mortgage is most suitable, which may depend on the intended use of the property.
Taking Spain as an example of how the mortgage process operates; on the plus side, the lender will not allow completion without having all the registration documents in place, which is ultimately good news for the client as this does provide a level of protection. However, this can be a lengthy process and client expectations must be managed to ensure this is understood.
In France, again on the plus side, contracts are normally signed usually straight after agreeing on a price, committing both the purchaser and the vendor to the sale, which means gazumping is much more of a rarity than in the UK.
However, timescales towards completion can be a problem – various cooling off periods apply in France at different stages of the purchase and can be quite lengthy. Ultimately though these are in place to help protect buyers.
Options
There are various options as to the level of activity in the overseas market that brokers may wish to undertake. The conclusion reached may be not to engage at any level due to the inherent complexities involved. In such cases it may be more prudent to simply direct the client towards a third party specialising in this market.
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However, it may be possible to segment the market and cherry pick, offering loan arrangements in selected countries, such as those with more mature markets and established track records in providing loans for UK nationals, for example, France, Spain and Italy. For those clients with more adventurous tastes, with destinations in mind outside of the norm, the expertise and experience of a third party broker specialising may be the best option, as the mortgage process in ‘emerging market’ areas may be unproven, and a minefield for brokers not conversant in dealing with overseas lenders on a regular basis.
Brokers will need to be fully aware of the various offerings available across a wide range of countries, along with the specific legal and tax requirements for each country. This would involve establishing and maintaining an up-to-date and comprehensive knowledge of mortgage products and be able to offer the best loans available to their clients.
Looking at the mortgages available purely from a selection of European countries, for example, the most commonly available mortgages are repayment and interest only, the latter being a relatively new offering, and not yet generally in use in countries such as Greece, Malta, the Czech Republic and Bulgaria. The currency in which loans are offered also varies from country to country. Although the majority are available in most currencies, loans are only offered in euros in Italy, France and Bulgaria.
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Standard variable rate loans are usually available, with an initial discount set rate for up to the first year, reverting to an additional percentage rate above the euribor, varying from country to country. Other variations the broker would need to be aware of are, for example, that loan-to-values are typically around 80 per cent, but can range anywhere between 70 per cent to 90 per cent. The maximum term of the loan can be as low as 15-20 years, but are offered for up to 40 years in Southern Cyprus.
Potential pitfalls
Clients also need to be made fully aware of the potential pitfalls when buying mortgages overseas, especially as with overseas purchases, the heart may rule the head when obtaining a dream property. Brokers should always be in a position to offer the best advice to their clients including:
- Always ensure independent advice is sought from solicitors, architects and surveyors, who are conversant in the relevant country’s laws and processes, and know the specifics involved in buying a property there.
- A valuation needs to be undertaken by the overseas lender, to highlight any possible problem with the property and any boundary disputes.
- Clients should never sign anything they do not fully understand.
- Mortgage finance should be arranged ‘in principle’ wherever possible, before there is an agreement to purchase the property, or before contracts are signed and deposits paid.
- Clients should be aware of the costs charged by the authorities.
- Foreign bank accounts will be required and a Certificate of Importation for any money brought in from the UK.
- Standing orders from the local bank account need to be set up to meet bills and taxes. Failure to pay taxes in countries such as France, Portugal and Spain could lead to court action and possible seizure of the property.
- Bills do not end at the asking price. Fees, taxes, and insurance must all be met in the host country.
Apart from financial considerations, there are legal and tax requirements which vary. Brokers should be prepared to refer clients to tax specialists for specific advice.
Therefore, brokers wishing to supply their clients with the best possible advice on overseas property have various options as to their level of involvement. As the UK has a long-established, competitive secured loan market, brokers may decide that the overseas market will present a lucrative and interesting challenge. Others may be of the opinion that creating mutually beneficial partnerships with a third party, specialising in overseas mortgages is the best option.
Ultimately, the key is to provide buyers with sound advice and guidance throughout the process. Whether people are buying purely for investment or are ploughing their hard-earned life savings into owning a place in the sun, they deserve the best possible advice and protection from the intricacies of each country’s individual laws and requirements. After all, in many cases, people only get one chance of buying their dream overseas home.
