UK property prices are expensive compared to many other destinations in the world where a substantial home can be bought for a fraction of the price for the equivalent home in the UK.

There are several options to look at when you are buying overseas but cannot afford to buy the property outright and so need a mortgage.

Unlock Equity in Your UK Home

You can apply for a remortgage on your UK home and unlock equity to use to buy the overseas home outright.  This has the advantage of maintaining a degree of simplicity because you will be known to UK banks that can readily see your credit history and assess your application efficiently.  

You will also have your loan repayments denominated in British pounds which makes a lot of sense if your income is also in sterling.  This way you will not have to worry about changing currency to meet your repayments or face the risk of exchange rates fluctuating making your home payments unaffordable.  

Apply for an Overseas Mortgage

You may not want or be able to unlock equity in your UK home to buy your overseas home, so an alternative is to look at arranging a mortgage overseas.  The mortgage will be denominated in the overseas foreign currency, which should present no real problems when it comes to making monthly payments if you also have an income paid to you in the same currency.

Where you will have a serious issue is when you are paying in say, US dollars for the mortgage repayments but you are paid in British pounds.

The problem with this is that you are exposed to foreign exchange rate risk.  Currently, you can buy $1.50 for about £1, which means if you have a mortgage payment of $1,500 per month you need to buy them with £1,000.

What if the exchange rate weakens against the pound?

If the exchange rate slips so you only buy $1.25 for each £1, then your monthly mortgage payment will stay the same at $1,500 but you will need £1,200 to buy those dollars.  In other words, your mortgage bill increased by 20% with no change in interest rates!

There are also the issues with local laws and customs; for instance, some countries will not allow foreigners to own land or property, or local banks may have very different criteria for making loans and especially to a borrower who has little or no track record in that country.  It is essential that you seek and follow expert advice when using an overseas mortgage source.

There are more complicated mortgage options available which we shall not discuss here, however the main point to understand is that the decision to buy overseas requires professional advice.  Whether buying outright with cash, a remortgage of your UK property or with the assistance of a local lender, you must understand the full ramifications of the transaction and any potential or actual implications, including taxation of any gains at home and abroad.