June 28, 2003
How to finance your holiday home
EVERY year people return from summer holidays determined to buy their own home in the sun. Whether smitten by the charms of a villa on the Costa del Sol or a ruin with a view in Tuscany, it is worth taking time to shop around for the best-priced finance before rushing to buy.
There are several options to consider. For those with lots of cash, or who need only a small amount initially, remortgaging a UK property is one route. Remortgaging would save the costs associated with a separate overseas mortgage and rule out worries about exchange rate fluctuations. But it could cost more overall because UK mortgage rates are at present higher than those of European lenders.
It also needs careful thought before a main home is put at risk to finance a second home — which could be the case if your financial circumstances suddenly change. In addition, says Simon Conn, of Conti Financial Services, a lot of people have been raising cash from their UK properties without taking legal advice. “When you borrow from an overseas lender they will do all the legal checks on the property.”
In a recent case a buyer was on the point of signing for a house in Greece when the bank lending him the money discovered that the vendors did not have the title to the property. Had the buyer gone ahead with the deal, he would never have been the legal owner.
Anyone remortgaging in the UK to buy a property abroad would also need to check carefully with the lender. The terms of the loan might not allow the overseas house to be let to generate extra income.
If a separate mortgage is taken out on an overseas property, do not overlook the significance of exchange rate fluctuations, which can increase the cost of the loan as well as affect the value of the property. This applies both to a sterling or a euro mortgage, the exception being if you are paid in euros and take out a euro loan.
One option to consider is to buy currency at a fixed rate of exchange for several months ahead, so that at least you will know exactly what the mortgage repayments will be. Propertyfinance4less, the broker, offers such a facility, which allows borrowers to fix the loan costs for up to 12 months at a time. But it does not necessarily rule out fluctuations if the exchange rate moves significantly from the level at which the currency was bought.
Choosing a euro loan can have advantages other than the present low rates. Ian Mullis, of French Mortgage Connection, a broker, says that the interest on a French mortgage can be offset against any rental income for tax purposes.
An increase in the number of UK buyers seeking property abroad — including many more making a permanent move — has opened up the loans market, with both UK and overseas lenders offering very competitive rates.
Here Times Money looks at the best deals available for European and US properties.
FRANCE The lowest rates on offer at present start at just under 3 per cent, with a range of fixed and long-term options available, as well as interest only and repayment mortgages. French Mortgage Connection has a rate of 2.95 per cent available for a term up to 20 years for borrowers with a 40 per cent deposit. The best variable rate is now 3.3 per cent. All the loans are in euros and all are suitable for anyone who may wish to let the property for holiday use.
UK lenders in the market include Abbey National, which has a euro loan with a variable rate of 3.9 per cent — although the terms do not allow the property to be used for holiday lettings. Barclays also has a variable rate, fixed at 2.95 per cent for the first year, while its fixed rates start at 4.25 per cent for a term of one to ten years.
SPAIN There is a choice of sterling and euro mortgages for properties in Spain. Euro mortgages are cheaper, however. Conti Financial Services can provide loans at 2.75 per cent. Barclays also has a variable rate of 2.75 per cent, which is fixed for the first year and then linked to Euribor, the European base rate.
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