From holiday homes to buy-to-let or investment properties, more and more Americans want to buy in continental Europe. Prime French (Paris, the Alps, and the French Riviera), Spanish, (Costa del Sol and the Balearics), Italian (Milan and Como) and Portuguese regions (the Algarve and Quinta do Lago) are all especially popular with Americans.
Prime and super-prime property is plentiful across Europe with everything from ultra-modern mansions to renovated villas and grand properties all available for purchase. These properties - especially those in the most popular and sought-after locations - typically hold their value and are appreciating assets, usually also making them good investment opportunities.
However, perceived complications of financing a property purchase in Europe often act as a barrier to entry for many Americans. Why is this the case?
For starters, the process of buying a property is very different in Europe than it is in the US. The way mortgage rates are calculated is different too, as are all the micro-elements of the finance deal, including everything from how to open a bank account to knowing which lenders will offer the best deal, what paperwork will be needed and how it to present it to a lender.
But financing a purchase shouldn’t be complicated. And it doesn’t have to be.
Here are some essentials that American buyers should know about European mortgages:
While there are some similarities, you will need to get expert legal and financial advice about how each process works. You’ll also need to understand how owning a property in Europe may impact your fiscal position.
Generally, Americans can purchase property anywhere in continental Europe, but there can be restrictions on where you can buy in different countries
For example, Switzerland only allows non-residents to buy in certain regions of the country. Ensuring you are legally able to purchase your planned property is critical.
You should also seek advice on factors like how long you will be able to visit the country where your property is located without a visa each year, legal responsibilities associated with owning a property and so on.
While European mortgages are readily available for American nationals, financing works differently compared to the US. The processes can take longer to complete due to a more rigorous underwriting process with lenders under obligations to complete more extensive regulatory checks too.
Understanding how European mortgages work and the various products and options available to you is essential to ensure you get the best deal.
You will need to supply lots of information and documents to lenders as part of your mortgage application process.
These will not necessarily be difficult for you to compile, but some may need to be written, presented or prepared using specific language to meet the requirements of your lender. Enness can advise and assist you with this, alongside your legal team.
Large European mortgages (€2 million+) are readily available for American borrowers, most usually from private banks
However, private banks do not lend for all types of property or will be hesitant to lend in certain regions that are less liquid. Checking to see if finance is available before you sign any paperwork is imperative.
Private banks tend to be the most competitive lenders for Americans’ prime property purchases. However, it is very difficult to get a private bank mortgage without placing assets under management (AUM) and this may work differently from in the US.
Placing AUM usually comes with several advantages, including that you will typically be able to access a 100% loan-to-value mortgage as well as the fact that your funds will be managed.
Changes to the dollar-euro exchange rate will affect what you pay on your European mortgage. Along with advisers and currency exchange experts, Enness can advise you on how to mitigate the exchange rate risk associated with a European mortgage.
It is worth noting that in many cases, a private bank mortgage that sees you place AUM will also typically assist borrowers to hedge inflation as part of the package, which is a further advantage of this approach.
There is a general consensus that mortgages for Americans buying high-value property in Europe is challenging, but this isn’t necessarily the case. Generally, European retail banks can struggle to lend to American nationals for a variety of reasons. However, international private banks are willing to lend to Americans, even if borrowers require very large (€10 million+) European mortgages.
European mortgages are undoubtedly complex for Americans to arrange themselves, and this is why many people believe them to be so difficult to obtain. The reality is that European mortgages for American buyers simply require more attention and time to arrange than a domestic purchase in the US.
For their part, lenders will also want to assess a borrower’s income and net worth carefully to ensure they can afford the mortgage. They’ll also want to carry out the necessary checks and processes to ensure that the borrower - and they as the lending institution - are complying with all necessary reporting and declaration requirements.
With that in mind, let’s take a closer look at what a private bank mortgage can involve for Americans buying in Europe, and how Enness can help.
A private bank mortgage is usually the most advantageous property financing route for American buyers because these lenders can adapt the finance package to meet the borrower’s individual requirements. They can also take a more flexible approach to assessing an individual’s suitability for a mortgage. This is in the sense that they can consider global income, individuals with non-standard income, entrepreneurs or business owners, wealthy borrowers nearing retirement age, and individuals with a large asset base and net worth but relatively little liquidity.
Private banks only lend to structures rather than individual borrowers, but they can easily accommodate lending to corporate entities in jurisdictions typically favoured by Americans like Cayman or the BVI. This means the finance package will be adapted to fit the client’s existing structures and lend in the most efficient way.
Enness can link borrowers to expert service providers that can assist with company set-up and broader tax and legal advice if they need to set up a new entity as part of the property process. This can be a relatively straightforward and quick process, and rarely presents difficulties. Borrowing via entities also facilitates the optimisation of the mortgage from a tax and liability perspective.
Borrowers will almost always need to place assets under management (AUM) to access a European mortgage from a private bank. Dry lending (a loan that doesn’t require borrowers to place AUM) is sometimes possible, but very rarely, and only ever at the bank’s discretion, depending on the borrower’s wider quality and profile.
Placing AUM is generally advantageous for borrowers, however. Assets will be actively managed by the bank, generating a return on investment designed to cover the interest on the mortgage. It also allows you to minimise the value of the assets (which is usually fiscally advantageous), all while maximising your LTV. This means that placing AUM can often provide a gateway to a 100% loan-to-value mortgage.
Borrowers will usually need to put a minimum of €1 million in assets under management to access a private bank mortgage. For larger mortgages - anything of more than €4.5 million, borrowers will need to place around 25-35% of the mortgage value, and in some cases, a little more.
For smaller mortgages, (€1-4 million) banks will usually offer fixed portfolios for AUM, and each of these will deliver a different investment strategy. Most banks will also offer a defensive investment strategy that will guarantee a return (as a percentage), with the funds 100% secured for borrowers who have a very conservative approach. Other portfolios will be more aggressive. American clients are sometimes offered alternative portfolios to European borrowers and some will offer guaranteed returns. If you have a very significant net worth and you are seeking a very large mortgage, the bank will usually offer a bespoke AUM arrangement.
Another advantage of a private bank mortgage is that banks will hedge the assets a borrower places under management. This mitigates the risk of a margin call triggered by a significant drop in the value of the dollar and the euro (which is linked to the mortgage).
American borrowers may not have existing private banking relationships in place to be able to access a high-value European mortgage but Enness can explain options and possibilities to borrowers, and help borrowers to arrange property finance.
Because buyers will usually need to place assets under management, it’s important to note that while rates and terms are important, borrowers will also want to ensure that the overall banking relationship suits them and that the bank will manage the funds in a way that matches their risk appetites. Sometimes, we see American borrowers prefer a marginally more expensive mortgage if we introduce them to a private bank that offers them a mortgage, manages their funds, and offers the kind of professional relationship that the borrower that is the ‘perfect fit’ for the individual.
This guide is for information and illustrative purposes only and nothing contain within should be construed as advice or a recommendation.
Financing options available to you will depend on your requirements and circumstances at the time. Any changes in your circumstances, any known likely changes, or omissions in the information you provide can affect the suitability of the options available to you. These should be communicated to us as early as possible.
If you are considering securing debts against your main home, such as for debt consolidation purposes, please think carefully about this and consider all other options available to you.
Your home may be repossessed if you do not keep us repayments on your mortgage or other debts secured on it.
Islay Robinson, a founder of Enness, is widely regarded as one of the UK's leading mortgage brokers. He has been instrumental in delivering some of the most complex and high value mortgages in the UK.