Affordability Criteria for overseas mortgage
How much can you borrow?
People wanting to know how much they can borrow always ask what’s the income multiples for an overseas mortgage, however Overseas lenders use a debt-to-income calculation as the basis for deciding whether applicants will qualify for a mortgage.
This means that your monthly debt commitments, including the new mortgage, must not exceed a given percentage of your net monthly income. The typical percentage is between 30-40% depending on the country & bank.
Here is a very basic example of how the calculation works for an employed applicant whose only debts are a repayment mortgage on their main residence & a credit card:
Applicants earns £3,000 after tax per month
35% of £3,000 = £1050 less UK mortgage of £500pm & Credit Card £100pm = £600pm
So, they have the equivalent of £450 per month they can “afford” for the new overseas mortgage.
The size of mortgage available would then be determined by the term & rate available to meet the £450pm affordability
There are many other variables to consider, but this gives a very basic idea of how the banks assess the applicants for the mortgage.
How much deposit do you need to buy an overseas property
The deposit requirements and fees associated with buying a property overseas are higher than here in the UK
In Spain and Portugal you will need a minimum for 30% deposit, in Turkey 20%. French 15%, & USA 30% to 40%
The banks want to see the deposit coming from savings and not by releasing equity from another property as it would mean 100% of the funds are borrowed
For purchase fees we suggest allowing 10% to 12% of the purchase price. This will cover purchase tax which can be as high as 8%, bank arrangement fees up to 1.5% and notary fees of 1% plus valuation, registration fees & other costs
If you are thinking of buying cash its worth noting it is difficult to re mortgage in the EU so you may not be able to capital raise on the property at a later date
Viva Costa has been helping clients and mortgage brokers with overseas mortgages for over 20 years
Viva Costa can help if you or your clients are looking for a mortgage in Spain, France, Portugal, Turkey or USA. To find out about lending criteria & check affordability email mark@vci-network.com
www.vivacostainternational.com
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