Is it better for Brits buying property in America to borrow in the UK or the US?

on Dec 9, 2014
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There’s no doubt that mortgage finance in the UK is becoming harder to obtain. With the introduction of the Mortgage Market Review, property investors are beginning to think outside the box when it comes to financing their purchases.

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Many property investors look to rental properties overseas as a means of adding stable, long-term investments to their portfolio. Markets such as Florida are hotspots for property investors, with both business and tourism driving demand for rental properties.

As the UK mortgage system tightens up, many investors are considering their options, one of which is the availability of foreign-national mortgages in the US. Banks are offering access to credit to non-resident buyers looking to invest in properties due to changes in the US mortgage market over recent years, as Anthony B. Sanders, economics professor at George Mason University in Fairfax, Virginia, explains,

“The American pool of borrowers is drying up. Middle-class borrowers have flatlined due to low income growth, and domestic investors are finding it less appetizing because the foreclosure inventory has dried up. So who do you go to? Foreign investors.”

Certainly, choosing to obtain financing in the US brings with it additional risks. If the exchange rate falls, a UK borrower with a US mortgage might find their payments suddenly rising. In addition US markets, just like property markets all over the world, are subject to price fluctuations, with prices able to go down as well as up.

For savvy investors though, the advantages are likely to outweigh the potential risks. Philip Button, Managing Director of specialist property investment firm Brookes & Co, which has been working in the Florida property market for over a decade, comments,

“Property prices in Florida plummeted when the recession struck, so investors need to be careful about where they invest and when. It’s why using an investment company that undertakes incredibly thorough due diligence is essential.

“I have seen first-hand what has happened to property prices in Florida in the past decade and happily now is the time to buy. The banks recognise this and the foreign-national mortgage is one way that they are helping to stimulate the market.”

Clearly, the banks’ strategy is working, with data from the National Association of Realtors showing that foreign property investors spent approximately $35 billion on mortgages for US homes during the year to March 2014 – a 46% increase on the previous year’s figure.

US banks tend to have either down payment requirements of 30% or more for foreigners taking out mortgages or set deposit limits, such as HSBC Holdings Plc’s $15,000 minimum requirement. Still, even with the necessity to put up such an amount of cash, many UK-based investors are finding that the mortgage climates on both sides of the pond are transpiring to make US financing seem more favourable than that in the UK. 

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