How to finance a house abroad

People buy property abroad for several reasons: as a holiday home, as a buy-to-let investment, or perhaps a combination of the two. Whatever your reasons, our easy to understand guide will take you through the most common questions about the where and how to get an overseas mortgage.

Can I get a mortgage for a foreign home from a UK bank?

To fund your purchase you’ll need an overseas mortgage. You can’t use a UK mortgage product or deal for a foreign home. In addition, it is rare that a UK bank will lend against property in another country – even if they have branches and operations there themselves. Most often you’ll need to obtain a mortgage from a lender in the country of your overseas property. However, do be aware that some won’t accept applications from people who aren’t permanent residents in their country.

Help can be found by using a specialist overseas mortgage broker. They will know which UK banks offer overseas mortgages, and can help you to find the best deal for your requirements.

There is also a third option: if you are lucky enough to have enough equity in a UK property (such as your usual UK home), then it is quite common to remortgage to raise the cash to pay for your new overseas property.

However, it is worth remembering that overseas mortgages and house purchases are not covered by the Financial Ombudsman Service (FOS) or Financial Service Compensation Scheme (FSCS). Other countries might have something equivalent but don’t take this for granted – do your research and make sure you understand all the legal protections (or liabilities) you may encounter if buying abroad.

What fees do I have to pay if I’m getting an overseas mortgage?

It is often the case that deposits in other countries are larger than those in the UK. Where it is perfectly possible to get a mortgage with a 5% or 10% deposit in the UK, overseas you may have to pay 30% to 40%, or even more. Consequently, depending on the price of your new overseas home, you could have to raise a significant amount of capital to put down against your purchase.

There will also be additional fees to consider, such as legal costs, valuation and surveyors fees, etc. In some cases, these may be covered or partially covered by the incentives for your mortgage deal, but it’s more likely you will have to pay these yourself.

In addition there are a host of other local fees that may be charged – much like the land registry fees and even stamp duty in the UK. Again, make sure you know what fees apply, roughly how much these will cost  and when they are expected to be paid. 

Finally, be careful about the currency of your fees. If you pay in Sterling abroad, you will be at the mercy of foreign exchange rates. Instead, it may be a good idea to have an account in the local currency – enabling you to pay fees from this source and avoid any potential negative exchange rate issues.

Do you pay stamp duty on overseas property?

If you already own a property in the UK then yes, you’ll need to pay stamp duty even if you’re buying abroad. This is because it will be classed as a second home, and as such you’ll need to pay the surcharge.

Find out more about stamp duty in our guide.

Bear in mind there may be additional taxes you’ll need to pay as well. If you’re renting it out you’ll likely need to pay tax on the rental income, and capital gains tax could come into play as well, though this will only apply should you decide to sell the property in the future and make a profit.

Do your research to find out if there are any local taxes or charges to pay too, with things like purchase tax, registration tax and notary fees often applying. This means it’s wise to speak to a tax expert from the country you’re buying in to make sure you’re prepared.

How many Brits own property abroad?

The Alliance of International Property Owners estimates that some 1.5 million Brits own property abroad, with 30,000 new buyers added to that list every single year.

Is a holiday home abroad a good investment?

Having a holiday home abroad can be a great investment for many, particularly for those planning to rent it out when they’re not using it. The combination of affordable purchase prices and higher rental yields – both of which can be the case in popular holiday destinations – means there’s the potential for great returns, as well as the initial capital investment to benefit from, too.

Just remember to factor in any additional fees and taxes to work out the true returns, and always research your chosen market thoroughly beforehand to make sure it’s a good buy.