So, you’ve seen that beautiful cottage or apartment overseas and are ready to join the ever-swelling numbers of expats seeking a life change. All you need is that mortgage!

The good news is that it is relatively easy to get a mortgage in many overseas countries, and most expats have a trouble-free application process. There are some differences though and in this article we’ll examine how they may affect you.

The UK Background

In the UK it had never been easier to get a mortgage than it was between the latter 1970s and 2007.

It is true that there were one or two difficult years such as 1989/91, but in general during that very long period one had only to show some form of regular income, and to be buying a house that was at least roughly in line with the family’s financial position and the mortgage appeared almost by magic.

During the last 10-20 years in particular, the thresholds one had to achieve to get a ‘yes’ from the bank have been reduced again and again. In 2007 this culminated in perhaps the easiest mortgage markets the UK has ever see. One saw 100% mortgages, cash back offers, self-certification of income, very slack application of survey requirements, and so on.

The effects of all this on the banking difficulties of 2008 are beyond the scope of this article, but it is important to note that in many overseas countries this rather frantic revolution in the housing and mortgage markets never happened. Whether by accident or design is a matter of opinion, but in many other countries the approach to mortgage applications and mortgage approvals stayed essentially conservative and cautious.

This does not necessarily mean ‘more difficult’ - in fact at the time of writing it may actually be easier to get a mortgage in countries other than the UK! Even so, one needs to realise that the basic approach will be different to the UK not just in details but also in philosophy.

Here are a few basic thoughts on these differences to help you prepare, but please remember to do your research on your particular situation and country as the position usually varies significantly between countries and what follows are general pointers only.

Views of Property

In the UK, for many decades society has been highly mobile. People move around frequently for jobs and other reasons, and often regard their homes as a temporary investment. Many also seek to ‘climb the property ladder’ by planning to buy and sell a number of houses over a period of time. Property speculation is also fairly common.

Whilst every country in the world has its property ‘hot spots’ where property is sometimes looked on as a short-term and tradable commodity it is a fact that in the vast majority of overseas countries, the British view of property as a short-term investment does not exist.

The importance of this cultural difference to the mortgage application processes cannot be overstated.

Overseas the expat is quite likely to find that outside of major cities or tourist spots, property turnover numbers are low compared to UK levels. Property is often seen primarily as a home for the family and future. In many countries it is unusual to find buyers who at purchase time already have plans to sell-on in 2,3, or 4 years time for reasons of profit taking and ‘moving up’ ambitions.

Some expat enclaves in some countries may be exceptions to this general rule, as will be some chic city centres with high professional owner turnover, but even there the extent to which property will move quickly and increase rapidly in value is frequently highly exaggerated by ambitious agents.

What this means is that when applying for mortgages, few native borrowers would consider even for a second asking the bank to take into account the house’s likely value in a few years time or current market trends. They are much more likely to concentrate on what money they have available, how much they’re earning, and adding the two together to get a conservative view of what they can afford.

Bankers overseas, outside of the noted exception areas above, are part of this culture. They are much more familiar with mortgage requests based upon everyday family needs and longer-term family stability, than they are the more ambitious and sometimes speculative requests that are more common with many expats from the UK.

Effects

Getting an overseas mortgage is not complicated and many expats find the basic approaches similar to those of the UK. In many cases, as per the UK, you will just have to go through some basic form filling and assessment. Remember that the banks WANT to give you a mortgage if humanly possible – they don’t make money by saying ‘no’ all the time.

Even so, as a result of the cultural differences outlined above, many banks overseas operate cautiously with mortgage applications. Some of the biggest differences you’re likely to see as an expat are:

Higher deposits required

100% mortgages are unknown in many countries and even 90-95% is rare. You may be expected to find anywhere between 10 and 25% of the property’s value as your deposit before you’ll secure a mortgage.

Conservative valuations

Different countries have different systems for calculating the value of your house but in general you should expect conservative valuations. Many lenders will not be too interested in what you say the property will be worth in 2 years, nor what your agent says – they’ll form their own cautious view.

Unease with speculative mortgages

If you are perceived at the outset to be an expat buying due to price rise expectation and property speculation, then expect some nervousness on the part of the lender. . This suggests to them ‘fly-by-night’ dealings and a lack of conviction on the part of the buyer. Many overseas bankers also see this as insane risk taking and some privately refer to this as “The British property disease”.

You can get mortgages for letting and short-term property ownership etc, but you may have to work harder to find them. It is also true there are lenders who specialise in short investment type mortgages (e.g. some Spanish resort properties) but these are declining and do be careful you are not exploited here by selling agent/mortgage lender relationships you didn’t even know existed and which are inflating prices unrealistically.

Income calculations

In the UK, banks are used to seeing income available as coming from multiple sources, some of which are perhaps a little intangible. Overseas many lenders will want to see hard evidence of income via payslip copies and bank statements etc. They may be uneasy about income you’re asking them to consider from sources they can’t see clearly or which are high-risk such as investments, private transfers from relatives, or casual part-time working etc. You may find some income you have is not included in the mortgage calculations because it is deemed ‘inadmissible’.

Lower affordability calculations

You should anticipate overseas banks being cautious about how much you as an expat can afford to pay in mortgage from your monthly income. Many countries operate a crude figure of around 35% - in other words they’ll add up your monthly income and will not give a mortgage where the monthly repayment is more than 35% of that income.

Overseas income and security

Most lenders will consider overseas earnings as part of their calculations. If you’re in regular employment in the UK with a verifiable position and evidence of salary, this may well be fine.

When purchasing property the mortgage lender normally will require charge over the property – in other words they’ll repossess it if you default. As it can be difficult or impossible to enforce such legal guarantees across national borders, you will find it almost equally impossible to try and secure a mortgage in country ‘a’ based upon your offer of security against an existing property in country ‘b’. This also explains why most UK banks will not give mortgages for properties overseas – though they may do so through their overseas subsidiaries.

Reduced product offerings

The sheer number of mortgage products offered in the UK baffles many overseas bankers. You will probably find that in your new country there are far fewer and they are less complicated. This can be an advantage sometimes, but you may also find it a little more difficult to find a mortgage that is tailored to your specific needs.

Second Mortgages and Re-Mortgages

In some countries it is not easy to get a second mortgage even if you can afford one. There are many reasons for this not the least of which again is at heart a mistrust of ‘property speculation’. You may have to shop around.

Finally, a quick word of warning about re-mortgages. In some countries a re-mortgage just does not exist. It doesn’t matter how much equity you have in your house, you may find it hard or even impossible to obtain one however much you need the money. Your only option may be an outright sale.

The reasons for this vary from country to country but once again it is primarily a question of culture. Many overseas countries are not happy with the concept of ‘debt’ and traditionally, once a house became owned by a family and debt-free, it would have been unthinkable to add debt again to the family home via a re-mortgage. As a result, market demand for these products historically was limited and vast choice does not exist.

--