Is it better to borrow money for a foreign property from home or overseas?

There are benefits and risks to both options, so it is worth taking the time to understand each choice carefully so that you do not get caught out.

In terms of ease of access, you are likely to find it easier to get financing in the UK, as you will have a history of domestic payments and borrowing to help a lender assess your ability to repay the loan.

Your credit score is not an international measurement – varying data protection laws across the globe make it difficult to share personal information across borders, so a strong credit rating does not necessarily apply abroad.

Of course, you can obtain a copy of your UK credit report and present this to an overseas bank, which may help them evaluate your application, but this does not guarantee you will be treated as favourably as a national with a strong domestic credit rating.

The other issue with getting an overseas mortgage is that you will not receive the same protections as you would if you dealt with a UK institution.

Bodies like the Financial Ombudsman Service can only deal with complaints regarding companies that operate in or from the UK, while the Financial Conduct Authority (FCA) only regulates UK businesses, so if something went wrong you would not be able to claim compensation on an overseas mortgage.

However, borrowing overseas can offer financial benefits, as you may be able to benefit from lower interest rates overseas, although you will likely need to offer a larger deposit than you would back in the UK.

For instance, Eurozone interest rates are much lower on average than those in the UK, which means it could cost you less over the duration of the mortgage.

You will need to consider the impact of exchange rate fluctuations upon your mortgage premiums when deciding whether to borrow at home or abroad.

For starters, the going market rate will affect how much you actually need to borrow.

Say you were planning to buy a property in Spain for €200,000, two months ago you would have needed to borrow £175,746, but at the current rate you would only need £169,204.

The exchange rates are currently in your favour, but they might not be a few weeks or months down the line, borrowing overseas negates this to begin with, as you do not have to immediately think about the exchange rate.

You will have to give consideration to how fluctuating exchange rates affect the amount of money you need to transfer from the UK to meet your overseas premiums, however.

With exchange rates moving by several percentage points per month, your premiums could be significantly higher or lower each month.

While it could benefit you in the long run, reducing the overall amount you actually have to pay in sterling, it could also see you paying over the odds, while also making it harder to budget your finances on a monthly basis.

So when considering whether to borrow money in the UK or overseas, the question you need to ask yourself is ‘Do I want to take the risk on currency exchange now by borrowing in the UK, or at a later date by borrowing overseas?’

Daily Express :: Personal Finance Feed


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