21 February 2017
Financing options for buying in France, Spain, Portugal and Italy
WITH THE POUND MAKING UP GROUND ON THE EURO SINCE THE INITIAL SHOCK OF THE BREXIT VOTE AND WHILE IT IS CLEAR THE FINER POINTS WILL NOT BE KNOWN FOR SOMETIME, BUYERS ARE RETURNING TO EUROPE. MIRANDA JOHN, INTERNATIONAL MANAGER OF SPF PRIVATE CLIENTS, DISCUSSES THE OPTIONS AVAILABLE.
Since the decision was made to leave the EU, banks who specialised in lending to British buyers have not fundamentally changed their lending policy but affordability is key. Some banks are introducing ‘stress’ tests to ensure that borrowers can withstand currency fluctuations. All applications require full supporting documents with close scrutiny of bank statements and income is strictly assessed on what is visible on the past three years’ tax returns rather than any future/potential income or revenue on which tax has not been paid. For mortgages of €2m-plus in prime locations, private banks may lend. Buyers should beware that unlike the UK, the mortgage markets in Europe are much stricter and far more limited. A mortgage secured for a purchase will obtain the best terms and in many instances may be the only time finance is available on the property.
FRANCE Always a strong market for British buyers, France has something to suit everyone, from ski chalets to rural retreats, from the glitz of St Tropez to the glamour of Paris. French banks are keen to attract a non-resident market and specialist divisions with bilingual staff to facilitate the processing in English are relatively common. As well as French lenders there are private banks so choice is good, resulting in competitive pricing. High loan-to-values of up to 80 or even 85 per cent are available apart from on chateaux where 50 per cent LTV is the norm. Very few lenders offer interest only and when they do, rates are higher. Long-term fixed rates (up to 25 years) are competitively priced and virtually the same as variable rates. Variable products come with no early repayment charges so suit some better while capped products offer some of the protection of a fixed rate. Private banks do not generally offer stand-alone mortgages because they are relationship-driven so require assets to be pledged. But they make a judgement based on the overall financial position and future potential of a borrower so can be more flexible with even 100 per cent loans and the cheapest margins available. Typically, lending would be over a shorter term – 5 or 10 years, but as standard with interest only.
SPAIN Spain has enduring appeal with Marbella and the Balearic Islands particularly popular. Spanish lenders were not particularly competitive until last year when rates and margins started to fall. The choice of lender has been narrower than in France due to the absence of private banks offering finance but this is changing with new banks showing an interest in some destinations. A maximum LTV of 70 per cent is available but not on property that would be classed as rural or those of too high or low value. Long-term fixed rates of up to 20 years are competitively priced.
PORTUGAL Portugal bounced back quickly after Brexit as the Golden Visa Scheme has done much to invigorate the housing market and Lisbon and the Algarve are classed as prime locations. Availability and the competitiveness of lending depend on ownership structure: if you buy via an offshore company, there is only one option and rates are high. For touristic licences there are also limitations and a maximum LTV of 50 to 60 per cent may apply. Where individuals are buying in their own names rates and margins are on a case-by-case basis but have fallen considerably over the last year or so. Loans are always on a repayment basis with an option of variable and fixed rates.
ITALY Italy is experiencing turmoil on the lending side as the European Mortgage Credit Directive, introduced in March 2016, is being interpreted in a very restrictive light so banks are no longer lending to non-Europeans or those who do not have income in euros. Other European banks wrestled with some of the same issues last year but none of them withdrew from lending. Italy seems rather behind the curve but it is hoped that a sensible stance can be reached.