Brokers who fear the UK housing market could run out of steam or those looking to expand could find that arranging loans on overseas properties is an attractive way to boos their business.
Alliance & Leicester Mortgages recently published a study on the prospects for overseas mortgages.
More than two-thirds of brokers questioned say they believe they will do more business in the overseas mortgage market in future while nearly half think that by 2020 they will probably expand into Europe, which is expected to be the biggest growth area.
Head of intermediary mortgages Mehrdad Yousefi says: “Pursuing the European and international mortgage markets will prove important for brokers, who are seeing an increasing number of UK residents wanting to buy second homes in established overseas property markets such as Spain and France.”
Estimates of the number of UK citizens owning property abroad vary from more than 750,000 to 1.2 million.
According to a recent Mintel report, The Market for Homes and Housing Overseas, around 800,000 British households now own a second home abroad, a rise of 45 per cent since June 2004.
An earlier report by accountant Grant Thornton put the total value of all foreign property owned by British citizens last year at £70.8bn – almost two and a half times higher than the 1998 figure.
Senior finance analyst Paul Davies says the buy-to-let boom of recent years and the surge in house prices has made it increasingly difficult for investors to find suitable UK property at home where they can get good returns.
“Some investors are now looking further afield to identify properties that have the potential to yield reasonable profits,” he says.
How is this being financed?
A buyer could raise a mortgage on their UK property to fund the overseas purchase if there is sufficient equity.
The alternative is to take out a mortgage on the overseas property or raise two separate loans – one on the UK property and one on the overseas property. Raising finance for the overseas property can be done with a foreign lender or a UK lender specialising in overseas markets.
Borrowing from an overseas bank can have its advantages, as interest rates in the eurozone are usually lower than in the UK. If the buyer plans to receive rent in the local currency, then it makes sense to take out the mortgage in the same currency. However, a foreign currency loan means taking on the risk of currency fluctuation unless the borrower pays to fix forward exchange rates.
Buyers need to be aware that the rules can be different if borrowing locally. Simon Conn, managing director of specialist broker Conti Financial Services, which can arrange finance in more than 40 countries, points out that in France, for example, lenders will not take proposed rental income into consideration for mortgage purposes, will not advance funds to buy or renovate properties that are uninhabitable and self-certification mortgages are not available.
Many borrowers prefer to deal with a UK lender which offers overseas mortgage services. Among these are Abbey and Halifax, which both offer mortgages on properties in Spain.
Abbey has a Spanish parent in Banco Santander while Banco Halifax Hispania was set up in 1993 and offers a range of current accounts and mortgages. It also provides an English-speaking helpline for customers who want to sort out their financial options before arriving in Spain.
Other lenders with overseas lending arms include Barclays, which lends on properties in France, Spain, Italy and Portugal; HSBC, which lends in France, Spain and Malta; Royal Bank of Scotland, which lends in Spain; Leeds Building Society, which lends in Gibraltar and Spain; Newcastle Building Society, which lends in Gibraltar; and Investec, which lends in a variety of currencies in France, Italy, Spain, Portugal, Switzerland, Monaco, Germany, Guernsey and Australia.
Norwich & Peterborough Building Society, which has been offering Spanish homeloans since 1998, has just introduced a buy-to-let mortgage for people looking to buy in Gibraltar, as well as a new further-advance product and base-rate tracker for its Spanish homeloans. Maximum loans to value are 85 per cent for Gibraltar and 75 per cent for Spain.
Gordon Bowden, business development director at Scottish Widows Bank, which lends under the Lloyds TSB name in France, Spain, Portugal, Australia, New Zealand, Canada and Dubai, says: “Customers benefit from the familiarity of dealing with a UK-based lender which will help to navigate them through every aspect of the process.”
What does all this mean for intermediaries? In light of the Alliance & Leicester report, broker Les Carter of Les Carter Financial Services says: “The overseas mortgage market will be a natural growth area for UK brokers and I anticipate that many of us will begin to focus on more business opportunities abroad.
“The likelihood is that more people will be able to afford to buy property abroad, with their interest fuelled by a number of factors such as a change in lifestyle, more flight routes and a desire for sunnier climes. It is inevit- able that brokers will tap into new income streams.”
Brokers overwhelmingly believe that lenders will form more strategic partnerships with major intermediaries. Over three-quarters of those surveyed said they expected more and stronger relationships between lenders and brokers, where they would align their plans to grow their businesses together.
Yousefi says: “The lender/ broker relationship is already a strong one in the UK mortgage market and it comes as no surprise that brokers envisage this will only get stronger, with more strategic partnerships in the future. In an increasingly competitive market, the most successful brokers should in fact see their earnings rise the more they adapt to the ever changing and evolving market.”