With the UK property market in the doldrums, many would-be buyers overseas are in limbo, unable to move ahead with their long-cherished plans. So how can you get round the problem and pay for an overseas property property without selling your UK home?
According to Zoopla, around three in five homes listed for sale since the start of the year remain unsold. The war in the Middle East caused interest rate cuts to be delayed, while the drama in Downing Street has been another “let’s wait and see” moment. For anyone hoping to buy a holiday home or retire overseas, being unable to sell the family home or a buy-to-let can delay plans.
Many people assume they have to sell their UK home before buying property overseas. In reality, that’s only one option. So if your home sale is taking longer than expected, or you would have to reduce the price too much to make it worthwhile, or even if you simply don’t feel you want to sell it, you have other options.
Fortunately, there are other ways to fund an overseas purchase. The right solution depends on your age, finances, long-term plans and attitude to borrowing.
In this guide
- Use equity in your UK home
- Remortgage your property
- Consider a retirement interest-only mortgage
- Take out an overseas mortgage
- Use pension savings carefully
- Buy jointly with family or friends
- Don’t overlook exchange rate risk
Using equity in your UK home
For homeowners aged 55 and over, equity release may provide access to money tied up in their property without requiring an immediate sale.
The two main types are lifetime mortgages and home reversion plans. Both allow you to release value from your home, but they work in different ways and have long-term implications for inheritance, future borrowing and overall retirement planning.
If you’re considering equity release, speak to a qualified adviser and choose a provider authorised by the Financial Conduct Authority and, ideally, a member of the Equity Release Council. Read more about what the FCA say about equity release as an option here.
Equity release isn’t suitable for everyone, but it may allow you to buy overseas sooner rather than waiting for the UK property market to improve.
Remortgaging to release equity
If you’re still working or comfortably meet lenders’ affordability requirements, a standard remortgage may allow you to borrow against the value built up in your home.
Many buyers use this additional borrowing as a deposit or even to fund an overseas purchase outright.
Mortgage availability becomes more limited as borrowers approach retirement, but lenders continue to offer products for older applicants depending on income, affordability and loan term.
Retirement interest-only mortgages
A retirement interest-only (RIO) mortgage can be another option for older homeowners. Unlike equity release, you make monthly interest payments throughout the life of the loan, so the balance doesn’t increase over time.
The capital is usually repaid when the property is sold after you move into long-term care or die. Because regular repayments are required, lenders assess affordability before approving the mortgage.
Taking out a mortgage overseas
Many buyers choose to finance their overseas property locally.
Countries including Spain, France and Portugal all have well-established mortgage markets for non-resident buyers. Loan-to-value ratios, lending criteria and interest rates vary between countries, so it’s worth speaking to a broker who understands the local market.
One important consideration is how you’ll make your monthly repayments. If your income is in pounds but your mortgage is in euros, exchange rate movements will affect the sterling cost of every payment.
A stronger pound can reduce your costs, while a weaker pound means your mortgage repayments become more expensive.
Managing exchange rate risk
Exchange rates can move significantly between agreeing a property purchase and completing it.
For larger transfers, even relatively small market movements can add thousands of pounds to your overall purchase costs.
Working with a currency specialist may help you:
- fix an exchange rate in advance with a forward contract
- set target exchange rates using market orders
- plan regular overseas mortgage payments efficiently
- avoid unnecessary bank transfer charges
Planning your currency strategy alongside your financing can make your overall budget more predictable.
Using pension savings
If you’re eligible to access your pension, you may be able to use some of your retirement savings towards an overseas property purchase.
For many defined contribution pensions, you can normally take up to 25% tax free, subject to current HMRC rules and allowances.
Taking money from your pension can affect your future retirement income and tax position, so it’s important to obtain regulated financial advice before making any decisions.
Buying with family or friends
Joint ownership is becoming increasingly common for overseas property purchases.
Buying with family members or friends allows you to share:
- the initial purchase costs
- ongoing maintenance
- insurance
- taxes and community fees
Before buying jointly, obtain independent legal advice and agree how ownership, usage and future sale arrangements will work.
Plan your funding before you transfer your money
Whichever funding route you choose, don’t leave your currency arrangements until the last minute.
Many overseas property purchases involve transferring substantial sums over several months, from reservation deposits through to completion and ongoing ownership costs.
Planning these transfers in advance can help you manage your budget more effectively and reduce the impact of exchange rate volatility.
If you’re buying property overseas, Smart Currency Exchange can help you understand your options and develop a transfer strategy that works alongside your purchase timetable.
