What to look out for when doing overseas mortgages

According to Julian Sampson, head of lending for law firm TWM Solicitors, there are "huge disparities in lending and home buying across Europe - and globally".

He commends the "helpfully sophisticated" system in the UK, with land registration and a court process, but says "taking property abroad", however, is a whole new ball game.

There are several complications that mortgage brokers and their clients will face when seeking to get an overseas mortgage.

However, with the right advice and support, often from fellow professionals such as lawyers and accountants, these can be overcome in the best interests of the end customer.

Language barrier

Language may seem like a trivial matter, but it is important to find a lender which has a strong Anglophone service when helping your expat clients find a home abroad.

New laws are being introduced by the government all the time and the benefits of having an offshore company are quickly being wiped out for investors. Mark Posniak

Daniel Howarth, head of Enness International, makes this point because it is crucial the client and the adviser both have someone who can talk through quite complicated financial matters in the language best spoken by all parties.

It's one thing to be able to carry on a conversation in French; quite another to grasp the nuances of financial jargon in a foreign language.

Mr Howarth believes many agencies are now working harder to provide such services for the 4.2m UK expats seeking a mortgage outside of the British Isles.

He claims: “Overseas banks have been rapidly expanding or creating specialist non-residents Anglophone departments to keep up with demand from non-domiciles.”

This is especially important given the next point: taxation.

Tax structures

Navigating the various tax structures even in the UK can be complicated, but add to this the multiplicity of cross-border tax jurisdictions, and throw in having to understand not only the financials, but also the language, and it's clear that having advisers with specialist knowledge is a must for would-be experts.

Mr Howarth adds: “Domestic counterparts often do not have the highly technical knowledge to accommodate changing and often complicated international tax arrangements.

“Despite most member states being in the European Economic Area, and dual tax treaties being in place for most member states, tax law still varies massively across member states.

“Inheritance tax (IHT) and which properties it applies to if a client has a global-spanning portfolio continues to be a point of contention.”

He explains that in some countries, such as France, a non-resident can buy a property under the IHT law of the country in which they are resident. 

For example, in the UK, IHT law states assets should be passed onto the spouse, but in France, the country applies ‘forced heirship’. This means the property is passed onto the children. 

While the Mortgage Credit Directive (MCD) is going some way to cleaning this up so that mortgages are not just being taken out in France to help with estate planning, British buyers can now buy property in France under British law.

Other duties

There are also other duties to pay heed to when purchasing abroad. Mr Howarth continues: “Stamp duty and legal status nearly always vary from country to country and the status or type of purchase.

“Therefore we advise anybody buying abroad to approach an accountant and a solicitor familiar with the client’s circumstances and local tax or legal regulation.”

Law and orders

For Mark Posniak, managing director of Octane Capital, simply keeping abreast of all the changing legislation, both domestic and international, can be a pain for clients.

He knows of several property investment clients who had been putting overseas property into a company structure to maximise tax-efficiency and minimise their bills, but have found themselves caught out by freshly complicated legal structures and ever-changing tax legislation.

He says: "New laws are being introduced by the government all the time and the benefits of having an offshore company are quickly being wiped out for investors. 

"I have met many investors who, in hindsight, would have avoided having an offshore company.

"Legally, there are also administrative costs to consider when it comes to managing the investments on behalf of the beneficiaries and lenders often struggle to understand the complex structures here.

"This means finance for them can be very difficult."

Helpful hints

Add to this the various "personal tax, inheritance tax, and legal issues which will need to be addressed on an individual basis", says Nigel Green, chief executive of the deVere Group, and the picture becomes less clear.

He also reminds advisers to get to know the client's needs intimately, as they will need to take into account personal circumstances and the various structures of the country of residence.

Thankfully there are helpful guides and international organisations that can help. Earlier this year, the Association of International Life Offices created a guide specifically to help advisers whose clients wish to leave the UK to work or retire.

According to the guidebook, which is available for free on www.ailo.org, it covers a host of issues that an adviser should bear in mind when dealing with overseas clients, such as:

• The tax position.
• How to deal with savings and investments.
• Implications for property ownership.
• Pension options.
• How to structure a will.

Bob Pain, chairman of the Association of International Life Offices believes the Moving Abroad guide will be '"welcomed by advisers and clients who need to understand the issues they will face when planning to leave the UK.”

simoney.kyriakou@ft.com