Getting mortgage finance for an overseas property purchase has never been that easy and so some buyers have taken out UK mortgages, as a means of financing a Holiday Home abroad or an overseas property investment. Well, now a new European law on mortgages seeks to harmonise mortgage regulation across Europe. What will it mean in practice?
The European Parliament has provisionally approved the Mortgage Credit Directive, which will require UK lenders to make some changes to the way they manage the lending process. The official voting, at the earliest, could be October 2013
A lot of the new rules mirror those being brought in under the Mortgage Market Review (MMR), which will be introduced in April 2014, especially around lenders’ obligations to ensure affordability. There is already anecdotal evidence that borrowers seeking interest-only mortgages are finding it tougher, even with high credit scores. There appears to be a much firmer emphasis on quality of repayment vehicle.
However, there are some elements of the directive which do not appear in the MMR. For example, one requirement is that lenders will have to provide borrowers, who are locked into their rate for under five years, with an APR for the “lock in” period and a worst case scenario showing the upper limit they could have been charged, on a lender’s standard variable rate over the previous 20 years.
Other changes include: use of a new European standardised information sheet, which will replace the key facts illustration used in the UK, (although the KFI might survive for five years beyond rule changes if the FCA chooses); and for lenders and brokers to inform the customer if they are receiving advice or just information (although in the UK, the FCA has banned non-advised sales for all but minor contract variations).
The UK secured four crucial opt-outs: to ensure lenders will be able to continue to offer guarantor mortgages, shared equity loans, offset mortgages and endowments. At one stage there was concern that these European measures were to include regulating buy-to-let lending, which isn’t currently in either the FCA or Consumer Credit Act’s remit, but the UK mortgage industry successfully argued against this.
The UK will have two years to introduce the rules once the European Parliament has voted through the final text and it has been published in the official journal of the EU.
Poland Investment Property – getting a mortgage
Generally banks in Poland can be seen as „cash flow“ lenders rather than „collateral“ lenders. In order to raise the desired financing, a bank has to be comfortable that a client’s disposable income can cover the difference between the mortgage loan repayment and the prospective rental income and/or the monthly mortgage repayment in full.
The concept of buy-to-let mortgages doesn’t exist and even taking out a loan with a view to letting out, potential rental income is not taken into account. Only concrete, provable, tangible income is entered into the affordability equation.
Turkey Investment Property & Holiday Home Purchases – getting a mortgage
The mortgage market in Turkey is fledgling in nature. Up until about 6 years ago foreign nationals were not able to secure a long term Turkish, mortgage against a Turkish property. Foreign national mortgages are not overly easy to get, there are few banks that offer them. Mortgages in Turkish Lira tend to have a higher interest rate attached to them, than Euro denominated mortgages and a significant deposit of 25-30% may be required. Owing to the relatively low prices of property in Turkey, many buyers are cash buyers or UK loans are used.
Spain Property buying – getting a mortgage
Mortgages in Spain tend to be less flexible than in the UK and re-mortgaging is not commonplace. Loan-to-values offered to foreign national buyers are not the same as those offered to local, Spanish buyers. Foreign nationals tend to get up to 60-70% of the value of the property as a mortgage, whereas a Spanish citizen can get more. There do, however, tend to be special financing deals, or arrangements through developers or banks, which can change this picture.
Latterly it has been more difficult getting a mortgage in Spain as Spanish Banks have grappled with boosting their balance sheets. And earlier this year Spain’s Supreme Court issued a ruling requiring lenders to offer less onerous terms to hundreds of thousands of mortgage holders, concerning “floor” clauses which set a minimum mortgage interest rate linked to relatively high interest rate thresholds. This ruling means less profits for the banks and ultimately more restrictive lending to property purchasers, particularly among the smaller banks e.g. Banco Popular, Banco Sabadell
If you are buying a property abroad, what should you consider?
It is not only a question of which countries and lenders to consider when buying a home abroad but also personal circumstances. As ever, it is important to ensure your credit-worthiness is solid and you have a good credit history. With rules in a state of flux it is a good idea to run through options with a good broker.
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