With summer now in the air many people are looking forward to holidays abroad. For a large number of those heading to France, Spain, Portugal or indeed Florida, a second home will seem an attractive idea.
Over the past few years second homes abroad have become increasingly popular with both families looking for a place by the sea with guaranteed sunshine and for older couples who want to escape the Irish winter.
But what is the best way to fund these homes? Many selling agents offer their own finance deals but is it better to go with a local lender or stick with your bank or building society.
Many people opt to go with the lender in the place where they are buying the home. This means they can use the property as security whereas many lenders here would look for security on property in the Republic. After all, it would be very difficult for an Irish lender to attempt to repossess a home in Portugal and very expensive.
If buying outside the euro zone in say Britain or the US, borrowing abroad also reduces currency fluctuations. This is particularly useful if you are planning to rent the property as that rental income will undoubtedly be in the local currency.
But there are also problems. Generally Spanish or Portuguese banks look for far larger deposits than Irish banks. Mortgages of 50 per cent are a fairly common upper limit. In the US the maximum is 80 per cent for a non-national while in Spain the maximum is around 70 per cent.
It is also important not to forget the extra legal and other additional costs. Conveyancing costs and taxes come to about 10 per cent of the purchase price in Spain and France. Running costs, one of the major concerns of people buying abroad, average about £2,000 (#2,539) a year for a £100,000 (#126,973) apartment, including insurance, refuse collection and electricity.
Most mortgage rates across the euro zone ought to be broadly similar. Interest rates in the UK are higher than in the euro zone. But over the past few weeks rates in the US have dropped to just below euro levels.
There are many people in their late thirties who may have owned their own home for over 10 years and there is now a substantial amount of equity built up. They may now have a home worth £500,000 (#634,869) but only have a mortgage of £50,000 (#63,486). Borrowing an additional £150,000 (#190,460) and raising the mortgage to £200,000 (#253,947) is not seen as a problem.
THE situation is slightly different for people who already have a number of properties. In these cases, lenders will often allow 100 per cent loans on the back of a number of homes.
Both of the main banks say they do some lending in this area but generally only to established customers.
Apart from this, purchasers should also remember they are dealing with a very different market. Property has never suffered a serious crash here, but that is not true for other countries. Spain, for example, has had crashes in which homes more than halved in value.
