Villa Spain - Property Magazin for the Costa del Sol

Villa España Financing your overseas dream home

Many people buying properties abroad are now looking to overseas lenders to help them finance their new home.The process is not as complicated, time consuming and costly as many people think, although it can be all of those things if you make the wrong uninformed choices at the outset.

Just take a look at some of the attractions:

Variable interest rates from as low as 2.5%.

Flexible mortgages with interest only options.

Revolving credit features that allow you to pay off some of the debt and then draw it back down again.

Small or even non-existent redemption penalties.

Familiar named brands such as Halifax, Barclays, RBS, Norwich and Peterborough.

On top of all this, there are a number of specialist broker firms who pride themselves on helping you cope with the whole experience.

So let's start with some of the basics:-

How much can I borrow

Most lenders will provide a loan of up to 70% of the purchase price of the property or the valuation, whichever is the lower amount. There are some lenders who will go as high as 80% under certain circumstances.

If you take a Euro loan you will have to make the Unlike the UK where the majority of Banks will set a maximum loan based upon income multiples, (e.g. you may be able to borrow up 3.5 x your annual salary), most Banks in Spain work on an affordability calculation which assesses your ability to repay all your credit commitments. Essentially 1/3rd of your net monthly income must be sufficient to cover your existing UK mortgage, credit card / personal loan payments and the future Spanish mortgage payments.

An important point to note is that very few lenders will take into account rental incomes you expect to receive from your new property. Although most will take into account rental incomes from any existing properties you own, where there is a long-term rental agreement in place.

What will it cost?
This really depends on two things. Firstly the term of the mortgage, or over how many years you would like to repay the loan. The longer the term the lower the monthly repayments, but remember that most lenders will want the loan repaid by the time you’re 70 or will stipulate a maximum term of 25-30 years.

Secondly the initial payments will be substantially reduced if you opt for an interest only product in the first few years of the mortgage. This might be preferable from a budgeting perspective, particularly in view of the initial set-up costs you will incur at the outset. However a word of warning, the loan will need to revert to capital and interest payments after a period of time which will significantly increase the monthly repayments at that stage.

Secondly the initial payments will be substantially reduced if you opt for an interest only product in the first few years of the mortgage. This might be preferable from a budgeting perspective, particularly in view of the initial set-up costs you will incur at the outset. However a word of warning, the loan will need to revert to capital and interest payments after a period of time which will significantly increase the monthly repayments at that stage.

If we take the following example:

A loan of £100,000 ( 145,000 at an exchange rate of 1.45 Euros to the Pound).

Interest only for the first 5 years, followed by 15 years capital and interest repayments, assumed variable Euribor linked interest rate of 3.5%.

Typically the monthly mortgage payments to the lender would be as follows:-

05 years = 60 monthly interest only
15 years = 180 monthly capital and interest payments of £714.88

Total amount repaid after 240 payments would be £146,178.60.