Mortgage For A Holiday Home Abroad

It’s winter in the UK, but far from being stuck indoors with the rain hammering on the windows, you’re lying in the sun in the garden of your holiday home abroad. That sounds good, doesn’t it? Warm weather and relaxation in a home away from home in your favourite holiday destination.

You might think owning a holiday home abroad will only ever be a dream, but have you considered getting a mortgage to make that dream come true? In this article, we look at how to get one of these mortgages and the lending criteria and deposit requirements. Plus, you can use our holiday home mortgage calculator to determine how much you could borrow.

Can you get a mortgage for a holiday home abroad?

Yes! As with any mortgage, there will be eligibility criteria to fulfil and an affordability assessment, but the fact that it’s an overseas property shouldn’t preclude you from getting a mortgage.

One thing to keep in mind, though, is that any type of overseas mortgage can be more complex to arrange than a domestic one. The good news is that professional help is available.

Rules, lending criteria and deposit requirements

Like in the UK, you’ll need to go through various checks by lenders to secure a holiday home mortgage abroad. They will primarily want to be sure that you can afford to make your repayments and will assess this by looking at your income and existing financial commitments, such as rent or mortgage payments in the UK, loans and credit card debts.

Lenders will also carry out credit checks to highlight any issues in the past with late or missed payments. Before making any mortgage application, it’s a good idea to get copies of your credit reports. This will allow you to check for errors and get a detailed picture of your credit history, as it will be seen by lenders.

Another factor that could impact your eligibility and how much you can borrow is your deposit. You’ll typically need a minimum of 10% for a standard UK mortgage but expect to be asked for more for an overseas holiday home mortgage. This will depend on where you’re buying and on the lender, but anything from 20% upwards is normal.

Make sure you understand the specific rules for the area you’re buying in, especially if you plan to rent out your holiday home. Some countries will have specific buy-to-let mortgage products, while others will have one standard mortgage with no restrictions on how you use the property. Others may require local licences or have rules around the information about your mortgage that need to be included in a rental agreement.

How much can you borrow?

Before you start browsing local estate agents for the holiday home of your dreams, you’ll need to work out how much you can afford to borrow. Your borrowing capacity will be defined primarily by affordability assessments carried out by your lender.

Depending on where you’re buying, affordability could be calculated differently. In some countries, affordability is based on a multiple of your annual income – in the UK, for example, borrowing is usually capped at 4 to 4.5 times your annual income.

In other places, such as France and the USA, it’s based on your debt-to-income ratio. This is the amount of money you have going out every month on existing debts, including your new mortgage, as a percentage of your monthly income. Generally, debt-to-income ratios of around 30% or below are preferred, although this will vary. Your broker can advise on the specifics of your circumstances.

For an idea of what you might be able to afford, why not use our holiday home mortgage calculator below? Keep in mind that these figures are estimates only. A broker can provide more bespoke calculations based on your specific circumstances.

How a broker can help get a mortgage for a holiday home abroad

Getting a mortgage in the UK can be daunting enough, so imagine the added complications of a different language, laws and local legislation. Fortunately, you don’t have to do it alone – you can easily take the stress out of getting an overseas mortgage by finding a broker specialising in holiday home finance.

The key is finding someone with experience securing mortgages in the country you’re looking to buy in. They will understand local rules and regulations and know which international and foreign lenders are open to holiday home mortgages. They’ll do all the research and negotiation on your behalf, leaving you to review their findings and sign on the dotted line.

They may also have relationships with local English-speaking estate agents and solicitors, which can further smooth your process. Make a quick online enquiry now, and we can match you, free of charge, with a broker with just the right experience.

Which lenders can help?

You have two main options when deciding which lender to choose for your holiday home mortgage. The first is to use an international bank in the UK and the country you’re buying in, such as Santander or HSBC. This can often simplify the process, with no concerns over document translations, and it protects regulatory financial bodies in the UK.

However, Depending on the country and the financial situation, you may find international banks more reluctant to lend. In this case, you’ll need to use a foreign bank in that country that’s open to applications from UK residents. If this sounds complicated, don’t worry; your broker will do all this research.

Rates are difficult to estimate as this will be very much down to the individual country and your financial situation, including how much deposit you can put down. Mortgage rates generally have increased throughout Europe over the last year in response to inflation and are forecast to increase further during 2023, so that’s something to be aware of. Expect to pay lower rates in countries like Switzerland, Portugal and France and higher rates in more volatile countries such as Ireland and Greece.

Can you remortgage your existing property to buy a holiday home abroad?

Yes, it’s certainly an option. If you don’t want to take out a new mortgage and have a lot of equity in your home, you could remortgage to release the equity and buy the holiday home in cash. This could work out cheaper for you if you can get a better rate on a UK-based remortgage than on a mortgage for a holiday home.

Remember that there is always a risk involved in releasing equity via a remortgage, as you’re increasing the loan size on the home you live in. If you can’t afford to repay, your home could be at risk. Foreign property markets can be less predictable, and if the market fluctuates and leaves you unable to bring in rental income or forced to sell at a loss, this could have a knock-on effect on your UK home.

A compromise could be to release some equity, enough for a deposit, and finance the rest of the purchase through a mortgage. If you want to explore remortgaging, talk to your broker. They’ll be able to model different scenarios for you and help you assess the risks and benefits.

Speak to a broker who specialises in mortgages for holiday homes abroad

If all this information has got you picturing yourself on a sunny beach, get in touch today and let us match you with a broker who can help make your dream a reality.

Give us a call on 0330 818 7026 or make an online enquiry now, and we’ll assess your needs and goals and find the broker with exactly the right skills and experience for you. Our broker-matching service is completely free of charge, and without obligation, so you’ve nothing to lose.