How to finance a holiday home abroad

Everyone wants a slice of the good life—whether that’s summer days spent basking in the Mediterranean sun or late nights sipping cocktails by the beach. Buy a holiday home, and these picturesque scenes can soon become a reality. But buying a property abroad isn’t as easy as booking a flight away, especially where mortgages are concerned. Overseas housing markets can be nuanced and unlike what you might expect in the UK. Fortunately, at Intasure, we’ve helped customers to manage these challenges and risks for nearly 20 years. In this article, we want to share this knowledge by discussing the things you may want to consider before financing a holiday home, including:

• Arranging a mortgage for your overseas property
• How much deposit you’ll need
• Costs to consider
• Holiday home insurance

This article is intended to offer high-level guidance. However, as soon as you start the process of buying a property abroad you should speak to specialists in each of these areas.

Arranging a mortgage for your overseas property

From your local bank in the UK

If you’re looking to buy property abroad, you might need an overseas mortgage. The good news is that many banks and building societies can help arrange one for you, you will just have to confirm what countries they operate in.¹ There are many benefits to using a lender in your home country:

• You may increase your chances of securing a mortgage with a local lender that can access your credit score.²
• They can arrange a mortgage in your language so you are less likely to run into translation issues.
• You can therefore save money on translation service fees.
• The mortgage process may be quicker, as a local lender will have access to your credit history.

From an overseas lender

If you don’t opt for a local bank, you could arrange a mortgage from an overseas lender. This could be through a foreign bank or specialist broker. There are benefits to choosing an overseas lender:

• They typically know your chosen country’s mortgage market and local laws.
• An overseas lender may access competitive mortgage deals and cheaper interest rates.

However, it can be tough to get an overseas mortgage, especially if you’re a foreigner. And even if you are successful, the interest rates are typically far higher than if you chose a local bank. Another consideration is foreign currency. Your payments could rapidly rise or fall depending on the exchange rate between local and overseas currencies.¹

Re-mortgage your home

You may consider refinancing your primary home and using the funds to pay for an overseas property if you have enough equity. The value you could unlock is the amount you’d receive after paying your mortgage and selling your home. Releasing equity is a quick way to free up cash, but there are some crucial details to consider carefully. For instance, many lenders charge compound interest, which leads to owing a significant amount more than you borrow, so just be careful. Also, it’s worth noting that in some countries (like Canada and Australia), banks don’t accept overseas property as security for a home loan. They’ll also cap your borrowing to a certain percentage of your property’s value—called the Loan to Value Ratio (LVR).¹

Use your savings

If you have enough savings, purchasing a property in cash can help you avoid the challenges of borrowing money. For one, you won’t have to pay back interest on a loan, helping you save. You’ll also potentially hold a competitive edge against other interested buyers as you’ll have funds readily available.¹ Be mindful, though, that your savings will have to cover essential expenses like:

• Translator fees
• Tax and legal fees
• International bank transfer fees
• Ongoing costs to maintain the property
• Furniture, shipping, and insurance costs

How much deposit do I need for an overseas property?

You may need a higher deposit for an overseas mortgage than in the UK. For example, Canadian lenders tend to ask migrants for a down payment of around 35%³. A deposit in Spain is typically 30% of the property price for non-residents.⁴ In some countries, a deposit may be non-refundable if you’re a non-resident.¹So, it’s important you’re happy with the sale and ensure you’ve completed all relevant checks.

Costs to consider

Like in the UK, you’ll incur additional costs to the purchase price of a property abroad. You should consider factoring in these costs before deciding on a property/location, including:

• Tax
• Legal fees
• Exchange rate changes
• Mortgage fees
• Connection fees for water, sewage, electricity etc.
• Fees for a chartered surveyor or quantity surveyor
• Insurance

Get cover with Intasure

It’s also a sensible idea to put some money aside for insurance. Should the worst happen, a holiday home policy can help protect your new property against damage, theft, and other risks. At Intasure, we arrange holiday home insurance in more than 40 countries and territories throughout the EU.

What properties does your holiday home insurance cover?

We can supply overseas holiday home insurance for a wide range of property types, and we can even provide insurance for holiday lets.

Why choose Intasure?

Some of the benefits of buying holiday home insurance with Intasure include:

• Building insurance cover of £1 million
• Public liability cover of up to £5 million included as standard
• Cover whether occupied or unoccupied
• Emergency travel after an insured claim
• Loss of rent included following an insured claim
• English-speaking support no matter where your property is insured

Our service simplifies holiday home insurance cover. Choose Intasure, and you’ll only ever talk with an English-speaking representative who will support you from your initial enquiry through to renewal. We’re also here to make policy modifications along the way if you need them. Get an insurance quote for your holiday home today or contact our UK team on 0345 111 0680 for more information. Sources:

1. https://internationalservices.hsbc.com/buy-property-abroad/how-to-finance-an-overseas-property/
2. https://www.onlinemortgageadvisor.co.uk/overseas-mortgages/a-guide-to-overseas-mortgages-for-buying-property-abroad/#how-to-finance-an-overseas-mortgage
3. https://moving2canada.com/buy-first-home-canada/
4. https://www.myspanishresidency.com/get-mortgage-spain/ 

The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Intasure accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.