How difficult is it to buy overseas property now

Posted 28 October 2008 at 17:32

Posted in Current Affairs

Just how difficult is it getting to buy property abroad now days?

Submitted by:      Ryan Hedley




In the midst of what is officially a recession in the UK according to Gordon Brown and Mervyn King, is it or has it now officially become very difficult if not impossible to fund an overseas property purchase?  I think initially it is worth expanding on this very point before actually addressing the answer to this question so that we have a basic understanding of the principals of liquidity and just how raising finance has been affected by the credit crunch.

Basically it's a liquidity issue, when we refer to liquidity in reference to banks and funding we are in fact referring to the flow of money, in more detail we would refer to the flow of money from Country to Country and from Bank to Bank, this flow of money then continues its journey from institute to customer and then customer to asset in the example of a property purchase.

Now Banks don't rely solely on loans to create liquidity, they also rely on deposits among other things, which is why a number of high street banks are now offering higher interest rates on long term deposit accounts to encourage customers to lodge funds for longer periods of time which in turn helps bolster internal stability.

Back to the issue of liquidity and lending, in a nutshell it is all about how easy the flow of money happens which will eventually determine how easy or difficult it is to actually borrow money. As with everything it's not always as black and white as that, it will always be relatively easy to borrow money but at what cost? Is the real question.

Fortunately with the backing of a number of global governments the financial systems have been pumped with billions Pounds of Capital and government funding which has mainly been provided by both the UK and the US.  This injection of capital and liquidity is beginning to filter through to the financial system which is restoring some much needed confidence in the market. In fact the cost of interbank borrowing is reducing for the first time in weeks as the Libor rate continues to move closer in line with current interest rates.

It is also worth pointing out that banks for the first time in a long time are actually in a fortunate position where they can actually charge a commercial rate for their products. For example loans and mortgages are more expensive now as they come with more risk, despite the risks - banks stand to make a lot of money going forward. In reality the risk of lending loosely has mainly affected first time buyers and people with poor credit history.

Equally important when it comes to financing an expensive project abroad is the type of mortgage or product that you opt for. Talk of the town would suggest opting for a tracker mortgage as interest rates around the world look set to fall in line with property market corrections. Given the current state of the market it is expected that a number of major lenders would have either re-structured or removed a number of their lending products (ditching high risk products) so you may have to consider other alternatives.  An example of a good product removed due to its high risk factor is multi-currency mortgages, with the exchange rates on some currencies moving by as much as 5-7 % a day in the wrong direction one could very soon find themselves unable to afford their repayments.

In conclusion and in answer to the question, providing you've got a decent track record and can prove affordability then you shouldn't have too many problems, structure your products around what you can afford first and then taking into account that the market will change. Borrowing in the short term may be more expensive but the fact still remains - it's a buyer's market and if you use your noddle you'll appreciate that reduced property prices can offset more expensive short term loans and thereby provide long term financial gain.