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Whether your client wants to buy an international pied-à-terre, foreign investment property or holiday home, mortgages are a great way to make foreign property purchases. However, many high-net-worth individuals and their advisors assume that buying cash is best or that international mortgages are inflexible or complex to arrange. International mortgages are increasingly the norm, and more lenders have moved into the market, making high-value international property finance highly competitive, easy to access and fast to arrange.
Here are four key things advisors should know about international property finance and how to help your clients purchase a foreign property.
The word ‘mortgage’ shouldn’t inspire visions of a package finance deal with inflexible terms that your client has no choice but to submit to. At the top of the market, property finance is always bespoke, and there is little that cannot be negotiated, and international mortgages are no different. Enness can help you source and build a one-of-a-kind mortgage that will be designed to fit your client’s needs, structures, income and plans for the property. No AUM mortgages, foreign currency mortgages, mortgages with no early repayment penalties, interest-only mortgages and high LTV mortgages will all be a possibility for the right borrower, for example. If you want to negotiate the very lowest rates for your clients this will also be an option, although putting AUM will generally be a prerequisite in these cases.
Some wealthy clients and advisors don’t consider mortgages on the assumption that international property finance is disproportionately complex and time-consuming to arrange.
These days, international mortgages are increasingly the norm. Lenders can execute these quickly, and there are different mortgage vehicles to choose from. Enness will always propose, source and negotiate a specific mortgage vehicle structured around your client’s unique situation. The secret with international mortgages is knowing which lenders to approach and the institutions that will be most adept at meeting your client's requirements, whether this is speed, rates or flexible terms. Enness can source offers in 24-48 hours and handle the administrative and application process on behalf of you and your client to ensure everything runs as smoothly and efficiently as possible.
There’s a general assumption that ‘cash wins’ when it comes to buying international property, especially in prime property markets. As a result, wealthy individuals can think that buying in cash will give them a competitive advantage.
However, the broader picture is far more nuanced: what are the fees associated with moving large sums of capital from country to country? What’s the current exchange rate? Will liquidating securities to create the capital needed to buy the property trigger a fiscal event that your client will need to pay tax on later?
It is always worth exploring if your client buying a property in cash is as advantageous as it looks on paper. Fees can add up quickly, and there can also be ‘hidden’ drawbacks. Sinking all their available capital into a single property investment can mean that your client doesn’t have a cash reserve. This can hold them back from being able to make other investments or will deplete their savings significantly, which may limit them in different, less obvious ways.
When it comes to buying overseas property, perhaps a better outlook is that it is liquidity, not cash, that is critical. At the top of the market, most lenders can move quickly, and there are various property financing mechanisms to explore if your client absolutely needs to compete with cash buyers – bridging finance and securities-backed lending are examples.
Understanding how it is best to buy property is critical to a successful experience, both in the short term and when it comes to the longer-term ramifications of the property purchase.
For example, for some individuals, it will be more advantageous to finance an international property purchase than it will be to buy it outright in cash. This can be because they will be taxed on their full equity/assets in the country where they are buying the property, but debt doesn’t count towards this. Understanding how to structure property finance so it is most advantageous to your client and keeps the headline mortgage costs as low as possible is critical.
Not all assets are equal in terms of lenders and understanding which assets to bring forward to help your client secure the best rates will also help.
However much your client is looking to borrow and whatever the plans for their property, Enness can help source and negotiate international property finance. Get in touch for an informal chat about any questions you have, to discuss your client’s plans or understand more about their options.