When should you get advice?
Do it early as starting point to the buying process.
It never ceases to amaze me the amount of clients who approach us for finance after they’ve signed to purchase a property.
Swept away by sales patter or approached while they are on holiday, they fall in love with the idea and agree to the purchase.
Most of us wouldn’t dream of buying our main home without first getting it properly valued, checking if we can get a mortgage and allowing a solicitor to check over the legal documents. However it would seem that when it comes to buying a property overseas some of us seem to forget to do these things.
Clients are then disappointed when we tell them they don’t qualify for an overseas mortgage. If you arrange the finance first then you’ll end up with peace of mind that a property is in your budget, that you qualify for a mortgage and you may find that you can actually afford a better property than what you originally thought you could obtain.
So how do overseas lenders calculate what you can borrow?
Overseas lenders calculate what you can borrow based upon affordability. Each lender has its own set of terms but in general they all work to similar guidelines.
These guidelines hinge in the main on two questions
* Can the client prove their income?
* What is the client’s debt to income ratio (DTI)?
If they cannot prove their income then the mortgage will be declined. Even when overseas banks were keen to lend they still didn’t embrace self-certified mortgages. This is probably why a number of them have weathered the credit crunch better than their Irish and British counterparts. Proof of income if employed will be via payslips and end of year tax figures and if you are self employed then by providing two years accounts.
Most lenders work on what they call a debt to income ratio. This ratio differs from country to country and from lender to lender.
For example, a client who has net income per month of 4000 euros may want to buy a property in Dubai. The lender may have a DTI of 35%. Therefore 1400 euros has to cover the client’s new Dubai mortgage payment plus his existing personal debt.
Let’s say he has an Irish mortgage payment of 500 euros, a monthly credit card bill of 100 euros and his new Dubai mortgage will be 700 euros, then in this instance he would be approved by the Dubai Bank.
However if his Irish monthly debt payments were 1000 euros then this would exceed this ratio because the total would be 1700 euros and the lender would decline the case.
So "How do I propose to finance my overseas property purchase?" should be the first question you should ask yourself before signing anything.
Armed with that little bit of information you already have an idea as to how you will be viewed by an overseas bank and how successful your mortgage application is likely to be.
Don’t get caught out like a client who was referred to us by an Independent Financial Advisor.
She had spent £430,000 on two properties and had remortgaged their UK property to the hilt and ploughed all their savings into the two apartments and still needed £60,000 to complete their purchase. After discussing her situation we had to inform her that she failed the lenders’ DTI ratio and wouldn’t qualify for a mortgage.
To add insult to injury we had to break the news to her that the property wasn’t on an approved development list for finance and therefore a mortgage wasn’t available even if she had qualified.
The client had spoken to a UK-based solicitor who didn’t even specialise in UK conveyancing let alone overseas and he’d allegedly told her that there were no problems purchasing in Dubai or arranging a mortgage.
The problems lie in the fact that full legal title to land as well as property isn’t straightforward in Dubai. For a Dubai property to qualify for a mortgage it has to be on a list of approved developments.
If it is not on the list then the client is not able to raise a mortgage on the property and will have to raise the balance from other assets or pay cash. If they cannot do this then they are unable to complete their purchase.
We get many calls from potential clients looking for Dubai mortgages as their properties near completion and they need to raise mortgage finance to enable to complete on the property. These clients were told by the company selling them the property that the mortgage and legal title would be sorted at the time of completion. What these clients are now finding is that this isn’t the case.
Finally, if you are relying on a Dubai mortgage to complete the deal, speak to an overseas mortgage specialist who can check the list of approved developments and arrange any finance for you.
* Kevin Macadam works at Overseas Mortgage Broker. For more information visit www.overseasmortgagebroker.co.uk
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