UK & International mortgages for property in Spain
You have decided on moving overseas and found that Spanish home you have always dreamt about. Now, what about the mortgage? Specifically, should you opt for a UK mortgage or borrow the funds to buy your property in Spain from an International lender?
A UK mortgage to buy a property in Spain
A bank will only lend money against a property in the same country. Therefore you would need to re-mortgage your home in the UK to release equity to fund the purchase of property in Spain. This obviously puts your property at risk if you were to default on the loan.
There are advantages to funding your Spanish home purchase in this way, for example:- If you already have a UK mortgage then there will be no legal or Land Registry fees if you obtain a further advance. There may not even be a bank arrangement fee.
- Re-mortgaging to borrow a larger amount can sometimes result in paying a lower interest rate than you a currently paying.
- There is a more comprehensive range of mortgage products and greater flexibility.
- You may be able to raise more money this way than with a Spanish mortgage on the property in Spain
UK banks in Spain offering mortgages for your Spanish home
There are also UK banks in Spain (such as Barclays and Halifax) that have introduced more features of UK mortgages to the Spanish property sector whilst still offering low European interest rates. Your mortgage will be secured on your Spanish home and, whatever happens, your UK assets will be safe. There may be other advantages and conveniences to going for a lender affiliated with your bank at home.
Spanish mortgages for your property in Spain
If you arrange to mortgage your property with a Spansih bank there will be higher set up costs amounting to around 2-3% of the amount borrowed. Spanish interest rates are lower than UK rates.
Spanish banks will typically loan only 80% of the value (not purchase price) of a property. UK lenders will re-mortgage a property for up to 95% of its value.
If you are renting out your property in Spain you may be entitled to offset the cost of the mortgage against income received, so reducing your overseas tax bill. The mortgage will reduce the net value of your Spanish home, which will significantly reduce the inheritance tax payable upon death.
If you are going to repay the mortgage from your UK earnings you will be exposed to major currency risk. This can dwarf the potential savings on interest payments because of wild fluctuations of Sterling against the euro.
Your individual circumstances will dictate whether a UK or overseas mortgage will be best for you. You must remember that taking a mortgage represents a huge financial commitment and think very carefully about what type is best for you. You can use our service directory to help you find UK and Spanish Mortgage lenders.
It is recommended that you start the mortgage process prior to searching for your property in Spain and seek qualified legal advice before you sign anything. Make the most of your Spanish home and your mortgage. The correct decision could net you thousands of pounds in savings.
