This is shaping up to be a key theme for overseas property investors in the short and medium term. The mortgage market is no longer black and white but ‘grey’, no longer sexy, full of complex financial instruments, but one which has gone back to basics. Getting a mortgage for an overseas property purchase has never been that easy, particularly with the turmoil in the Eurozone over the last few years. Some have sought UK mortgages as a means to finance an overseas property investment.
But now there is a lot happening on the regulatory front. The EU (Economic and Financial Affairs Council more precisely) has now adopted the Mortgage Credit Directive, which intends to create a unified approach to consumer mortgage lending across Europe, increase consumer protection and ensure the mortgage markets operate in a responsible manner. Member states have to adopt the directive into their national law within two years.
Property investors what does it mean for you?
There will be even more emphasis on responsible borrowing, with lenders and intermediaries required to check a consumer’s creditworthiness more rigorously.
In reality there is already more of a focus around mortgage affordability in the UK and with the lead up to the Mortgage Market Review (MMR) in the UK April 2014, borrowers will need to demonstrate how interest-only mortgages will be repaid and more attention will be paid to high credit scores and quality of repayment vehicle.
The UK secured four crucial opt-outs from the European Mortgage Credit Directive 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. It will be interesting to see how all of this becomes embedded into the UK mortgage scene over the next 18-24 months.
Spain Property buying – getting a mortgage
Spain has significantly reformed its financial sector, since 2012 according to the International Monetary Fund and materially minimised the likelihood of threats spreading from banks to the rest of the economy. It has restructured and recapitalised the Spanish banks and cajas, with special provisions for property-related lending, creating strong financial buffers against any adverse shocks.
We have already seen concrete evidence of the plan coming together with news that Bankia is back on its feet, having become the symbol of failings in Spain, Bankia reported the country’s largest ever corporate loss and received more than €22bn in state aid. Its recent €1bn bond issue was 3.5 times oversubscribed.
Investors have rediscovered their appetite for exposure to lenders in peripheral Eurozone countries. But, economic recovery needs to continue for this sentiment to be sustained.
Mortgages in Spain tend to be less flexible than in the UK, re-mortgaging is not commonplace and neither are ‘pure’ interest-only loans. 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 and/or banks, which can change this picture.
As ever, it is important to ensure your credit-rating is solid. With the mortgage rules in a state of flux it is a good idea to run through options with a good broker.
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Property Venture® is an award-winning, UK-based agency for overseas property who helps people buy investment property and holiday homes in Europe, more easily and safely than they can on their own, because we offer grounded common-sense advice.
The focus is mainly greater Europe: Poland property, UK investments, Spain property, Turkey property, Cyprus property
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Tags: European property, European Union, International finance, Mortgage loan, overseas banks, Overseas finance, Spain