How to Release Equity to Buy a Property Overseas
Buying a property overseas is an exciting goal, whether you are looking for a holiday home, an investment, or a place to retire too in the future.
One of the most common ways to fund this dream is by remortgaging your existing home in the UK to release equity for the purchase, rather than taking finance in the country of the purchase.
While this is achievable, it comes with specific rules, considerations, and potential pitfalls. Knowing how to approach it correctly can save you time and stress, and this is where Kerr & Watson can provide help.
What Does It Mean to Take a UK Remortgage to Buy Abroad?
When you remortgage, you replace your existing mortgage with a new one, often with a different lender or on different terms. This can allow you to borrow more money against the value of your property, freeing up cash to fund another purchase. In this case, that cash could be used as a deposit or even to buy a property outright overseas.
By tapping into the equity you have built up, you could become a cash buyer abroad or reduce your borrowing needs with an overseas lender. However, lenders are cautious about how funds are used, and not all will accept an application where the capital raised is intended for an overseas purchase. Kerr & Watson can identify lenders that are more flexible and ensure your application is presented correctly.
Why Would You Choose to Remortgage for an Overseas Purchase?
There are several reasons you might look to release equity to buy abroad:
- You may want a holiday home for family use or rental income.
- You may be relocating for work or lifestyle reasons but wish to keep your current home.
- You may see an investment opportunity and want to act quickly without relying on overseas finance (or be more confident and familiar in the UK lending system than one overseas).
Using your current home can sometimes provide more favourable rates than approaching an international lender, but this can change depending on the country and timing.
We can help you understand how much equity you can release and whether it is a suitable option for your goals.
Find out Your Options
How Does the Process Work?
The process is broadly similar to a standard remortgage but with additional considerations:
- Assess your current mortgage and property value. You will need enough equity to raise the funds you require.
- Consider your affordability. Lenders will check that you can afford repayments on the new mortgage while maintaining your existing financial commitments. They will likely need to know the anticipated plans for the property abroad and the monthly ongoing costs that you will incur.
- Understand the lender’s stance on overseas purchases. Many lenders are strict about the purpose of capital raising, so you will need the right one to avoid complications.
- Complete the application and provide documents. This may include payslips, bank statements, proof of income, and details of the existing mortgage. We apply on your behalf if you choose to instruct us.
If your plan involves letting out your existing property once you move abroad, you might also need to switch it to a buy to let mortgage. This can affect which lenders will consider your application, and some lenders will then consider you an ex-pat that may then complicate things further.
Key Considerations and Challenges
Releasing equity to buy abroad can be an effective strategy, but you must plan carefully:
- Lender restrictions: Some lenders do not allow funds to be used for overseas purchases, and those that do may have stricter criteria.
- Currency risk: If the overseas property is priced in another currency, fluctuations could affect the cost and affordability.
- Local legal requirements: Every country has different tax, legal, and property rules, which could affect timelines and costs.
- Tax implications: You must declare overseas property on your tax return, including any rental income or capital gains.
- Ongoing costs: You may need a contingency fund to cover maintenance, insurance, and any periods without rental income.
We can advise on the mortgage but you should make sure you have taken the correct tax and legal advice before proceeding with such a decision.
Why Timing Matters
If you are planning to relocate, acting before you move could open up better options. Many high street lenders are reluctant to lend to expats or require you to already live abroad before considering specialist products, often at higher rates. Completing your remortgage while you are still resident could save significant costs and give you more choice, however, you would need to make the lender aware of your plans.
Choosing Between a UK Lender and a Local Lender Abroad
Although remortgaging your home can give you funds quickly, there may be times when using a local lender abroad might offer better terms. Local lenders know their markets and may provide competitive deals. However, this may require language skills, additional legal checks, and navigating different systems. You would need to speak with an international mortgage broker or one based in the country of purchase, to understand the products available for a purchase mortgage, rather than a UK remortgage.
Protecting Your Finances and Your Family
Whenever you increase your borrowing, you should be thinking about protecting yourself and your family. Unexpected events such as illness, redundancy, or even currency changes could affect your ability to repay the mortgage.
Kerr & Watson not only advise on the best mortgage structure but also provide tailored protection advice to safeguard your home, your overseas property, and your loved ones.
Common Pitfalls to Avoid
- Assuming UK property rules apply abroad. Each country has its own legal and tax systems.
- Underestimating costs like local taxes, legal fees, and insurance.
- Not planning for currency fluctuations.
- Failing to get professional advice before committing to purchase.
Conclusion
Remortgaging to buy a property abroad can be a smart way to fund your dream home, but it is not always without challenges.
You need the right lender, to ensure they are willing to allow capital raising for such purposes, and you will be passing affordability taking into account all anticipated monthly costs.
At Kerr & Watson, we combine mortgage and protection expertise to guide you through every stage.
If you are considering taking a mortgage in the UK, contact Kerr & Watson today.
