Buying a property abroad is an exciting adventure. But one of the biggest hurdles you may face is coming up with the money for your investment.
However, you do have a few options when it comes to financing overseas real estate, whether you want to buy a holiday home, an investment property while your child studies abroad, or a place to retire to.
An overseas mortgage is any mortgage you take out on a property that's not in your country of residence. It can be from a local bank, or from an overseas lender in the country you want to buy in. Your approach will depend on your personal and financial situation, so it's important to do your research. Weigh the pros and cons of each option to help you decide.
You might be surprised about some of the perks that can come with owning overseas property.
Some banks and building societies, including HSBC, offer international banking services and can help you arrange an overseas mortgage. You'll need to check that they support your chosen country or territory.
By using a lender in your home country, you:
Keep in mind that buying a property overseas can be a very different process than what you're used to. You also might not have the same legal protection, depending on the location.
Other things to consider are foreign ownership laws; tax rules; foreign exchange fluctuations; planning permission; your exit plan, should you ever decide to sell; and insurance. With all the details you may not be familiar with, it's important to choose a lending bank that understands the local laws and has international experience in the country you want to buy in.
If you do use a local lawyer, make sure they are qualified to practice in your current country and overseas, preferably even specialising in international real estate transactions.
Another option is to arrange a mortgage from an overseas lender through a foreign bank or a specialist broker.
An overseas lender may:
However, it can be very difficult to get a mortgage overseas, especially if you're a foreigner. And if you do manage to get one, the interest rates could be much higher than if you were a local. If you take out a mortgage with an overseas lender, your payments are likely to be in a foreign currency, which might help if you want to manage foreign exchange fluctuations.
Your money will go further if your home currency is strong relative to the local currency overseas. But, if there are fluctuations and you see your currency fall, your payments could become more expensive if you're converting your devalued currency into the overseas currency to cover them.
If you use an overseas lender, it's recommended that you use your own, independent lawyer and translator to protect you from fraud.
If you can afford to, and if you have enough equity in it, you may consider refinancing your own home and using that money to pay for a property abroad.
Equity is the value of how much of your property you own. In other words, it's how much money you'd get after selling your home and paying off your mortgage. For example, if your mortgage balance is USD100,000 and your home is worth USD400,000, that means you have USD300,000 equity in the property.
You can increase your home equity by overpaying your mortgage payments, which puts extra money into the property, or if the value of the property goes up, either through home improvements or favourable market conditions. Making additional payments will also help you pay off your mortgage earlier and reduce the amount of interest payable. You may, however, be charged for early repayment; this will depend on the type of mortgage you have.
Releasing equity is a way to free up some of that value as cash to help you fund an overseas property. Think carefully about doing this though. Many such mortgages charge compound interest that will add up if you don't pay it as you go along. You'll also receive less than what your house is worth on the market in exchange for the cash.
When you borrow more money against your home, both the size of your mortgage and your monthly repayments will increase. You need to make sure you can afford the repayments to avoid your home being repossessed. House prices can go down as well as up. If the value of your home falls, you could go into negative equity. This is where you've borrowed more money than your home is worth.
In some countries, such as Australia and Canada, banks will not accept foreign property as security for a home loan. They'll also limit your borrowing to a certain percentage of the property's value (usually around 80%). This is called the Loan to Value Ratio (LVR).
If you have the funds already, buying a property abroad in cash can overcome the challenges of borrowing money. It's important that you can afford the property and have enough savings to cover expenses, such as:
By paying cash, you won't have to worry about paying back any interest on a loan. It might even give you an edge and bargaining power over other potential buyers if owners are keen to sell quickly. And if you have bank accounts in both countries, you may not incur any transfer fees at all: with HSBC Global Transfers you can transfer up to USD200,000 per day (or the currency equivalent) for free, to several countries and regions, including Australia, Canada, Indonesia, Mexico, the US and the UK.
If you decide to pay cash for your investment, you'll be tying up a big chunk of money in an asset and reducing your liquidity. Be wary of paying cash when you're buying off-plan in case the developer runs out of funds and you're left with a half-built property.
Before handing over any money, it's important to get independent legal and financial advice.
Lenders usually require a deposit, or down payment, of at least 20%. You may need a higher deposit for an overseas mortgage.
For example, a deposit for a Spanish property can be around 30% to 40% of the property price for non-residents. So if an apartment is on sale for EUR200,000, you may need up to EUR80,000 as a deposit. In Canada, lenders will usually ask newcomers for a down payment of 35% of the property's value; this will usually go down once the buyer builds up credit in the country.
If you're an HSBC customer with credit in one country, it's easier for us to share your credit details with your destination market when you're applying for an overseas mortgage.
In some countries, deposits may be non-refundable for non-residents, so it's important to be happy with the purchase and have all the relevant checks in place.
As real estate practices vary around the world, it's important that you understand the local process to avoid the risk of violating any laws or making costly errors. Some countries have government-mandated restrictions in place when it comes to foreigners owning property, with the buyer's country of residence, citizenship and financial situation also taken into consideration.
With some exceptions, non-residents in Australia need to have foreign investment approval to purchase residential property unless they're buying a new dwelling or vacant lot, which must then be developed within 4 years of purchase.1
Mortgage eligibility may be dependent on local policy and regulations. For more on this and other information for newcomers to Canada, please visit the HSBC Canada website.
Foreigners can purchase commercial real estate if they're planning to occupy it themselves.
If the buyer can secure financing there are no real estate restrictions for foreigners. Should the purchaser pass away, the property is not subject to French laws but to the purchaser's country of residence.
The government banned the sale of property to non-residents in 2018, but Australian and Singaporeans are exempt from these restrictions because of free-trade deals among the 3 markets.2
Foreign investors buying a home and living there for at least 5 years will be granted "property-based citizenship".
Permanent residents who have lived in the city-state for no less than 5 years don't need approval to purchase apartments, condos or short-term leasehold estates.
Non-residents with property that is not tied to a business or trade will usually be taxed at around 30%.
Consider the costs, such as tax and insurance, as well as the risks involved when buying overseas. In the US and the UK, you'd receive the title to the property; ownership may not be as clear in other countries.
It's recommended that you go through a qualified real estate professional and get independent legal and financial advice at every stage of the buying process.
If your property of interest is located in Australia, Canada, mainland China, France, Hong Kong SAR, India, Malaysia, New Zealand, Singapore, UAE or the US, you may leave your details on our quick form. Our experienced international team will get in touch with you on your preferred time and date to answer your questions about financing property overseas.
If your property of interest is in the UK, then please visit our UK website.
HSBC Holdings plc has prepared this article based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. HSBC Holdings plc and the HSBC Group (together, "HSBC") are not responsible for any loss, damage, liabilities or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use of or reliance on this article. The contents of this article are subject to change without notice. HSBC gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this article.
This article is not investment advice or a recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions. This article should not be used as the basis for any decision on taxation, estate, trusts or legacy planning. You should not use or rely on this article in making any investment decision. HSBC is not responsible for such use or reliance by you. Any market information shown refers to the past and should not be seen as an indication of future market performance. You should always consider seeking professional advice when thinking about undertaking any form of prime residential or commercial property purchase, sale or rental. You should consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this article.
1 Owning real property in Australia. https://www.ato.gov.au/Individuals/Investing/Investing-in-Australia/Owning-real-property-in-Australia/
2 NZ-Singapore Closer Economic Partnership. https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/nz-singapore-closer-economic-partnership/common-questions/