At any one time upwards of five million Britons are considering either buying a holiday home overseas, purchasing a place abroad for investment or contemplating retiring to a sunnier country. In fact, a recent Alliance & Leicester survey found that one in eight Britons aged 50 and over plan to retire abroad by 2010 - that's around 2.5 million people - but how do you finance the purchase of your dream home in the sun?
By Gordon Miller
In most overseas countries popular with British buyers - for example Spain, France, Italy, Portugal and Florida - it is possible to arrange a mortgage up to 75-80 per cent of the property's value against the overseas property through a mortgage broker or a bank either in the UK or in the country where the property is located and you may do so in Sterling or Euros.
Currently, it's probably advisable for anyone planning to buy overseas for investment and rental purposes to take out a mortgage in euros because this type of scheme offers the buyer the advantage of lower rates, currently around 3.5 per cent with a 75 per cent loan to value (LTV), compared to 5.5 per cent for a sterling mortgage. Plus, if you are hoping to receive income from rental in euros that will be paid into the bank account you are obliged to hold in, say, Spain, then the most sensible option might be to take out a euro mortgage on the second (overseas) property.
An alternative route to a mortgage is to raise equity (cash) by remortgaging against your property in the UK, a popular choice in recent years due to the huge increase in house prices that has enabled thousands of people to build up large equity in their homes.
'Some customers will have a preference to release equity from a UK property and buy the second home overseas for cash,' says Ian Smith, head of operations Europe for Banco Halifax Hispania (the Halifax’s European arm).
'A disadvantage for cash buyers, for example in Spain, is Inheritance Tax operates somewhat differently to the UK and is based on the net value of the property, that is the value of the house less any mortgage. The advantage of a cash purchase is that as most people are paid in sterling they avoid the currency risk of having their income in one currency (sterling) and monthly mortgage repayments in another (euros),' he says.
