Buying a property abroad has never been safer, with tighter laws, better protection for consumers and specialist English-speaking property lawyers ready to assist. In this article, we share four ways of raising finance to buy a holiday home and explain how to protect your property-buying budget from fluctuating exchange rates.
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A lifetime mortgage
A lifetime mortgage is a type of equity release — a method that allows you to keep your property or asset in the UK, while also obtaining a tax-free sum of cash. Essentially, you are borrowing a percentage of the value of your home while remaining the full owner. This money can then be used towards buying a property overseas.
Lifetime mortgages are available to homeowners aged 55 or over who live in the UK and have either fully repaid their mortgage or are very close to doing so. Your property must also be worth at least £70,000 or £100,000, depending on the type of property.
It is a great option for those looking to split their time between the UK and overseas as you do not have to move out of your UK home. You can either release equity as one big lump sum or in smaller chunks when it suits you.
There is no requirement to repay until you pass away or move permanently into long-term care, however, it is important to consider the interest that will build up if no repayments are made until this point.
Variable and fixed interest rate lifetime mortgages are available. With the fixed rate you will you know exactly what you will be charged, but flexible rates can offer a lower initial rate.
Selling your UK buy-to-let portfolio
Since the introduction of the additional 3% surcharge on stamp duty for second homes and buy-to-let properties in 2015 by ex-Chancellor George Osborne, the cost of being a landlord has sky-rocketed.
Therefore, it may make more financial sense to sell up and use that money to purchase your property abroad. Depending on the value of your buy-to-let property, selling up may also enable you to be a cash buyer on your overseas home. Not only is this often preferred by the seller, but it will make the whole buying process faster too.
Downsizing from the family home
Finding the family home too big now that the kids have moved out? Downsizing to a smaller UK property could be your ticket to that holiday home you’ve always dreamed of.
It is an incredibly flexible way of raising money — simply sell your home for the best price, move somewhere smaller and buy a property abroad using the cash. You may even have enough left over for living, removals or renovation costs as properties abroad are generally more affordable than in the UK.
However, it is important to consider the tax implications of owning a home in both the UK and overseas. You will have to pay a stamp duty surcharge of 3% on your second home, regardless of whether it is located in the UK or abroad, and if you decide to rent out either of your properties, you will be liable for income tax.
An overseas mortgage
If you are not in a position to release equity or sell your UK property, another option of raising finance for a holiday home is by taking out an overseas mortgage. Most countries in the western world allow foreigners to obtain a mortgage. This can be from a local bank or an overseas lender.
The costs and requirements vary between countries, however, as a rough guide, you will need a minimum deposit of 30%, plus taxes and expenses. Expenses can vary anywhere from 2% to 12%.
Mortgage terms can range from five to 30 years, and most countries require repayment by age 70 or 75. Rates vary by property type and location.
Good financial records and credit score will help your chance of getting a mortgage and having a bank account in the country will also be advantageous.
Whatever method you choose to raise finance for a holiday home, it is worth protecting your money against currency fluctuations, particularly in such uncertain economic times. This is particularly evident when looking at the last 12 months, in which £200,000 has varied by over €14,000.