13 Sep Mortgages in Europe: rates and conditions
The lowest mortgage rates in Europe are in Germany, Spain and the UK. For foreigners, home loans are available in most European countries. “Among the countries popular with buyers of real estate, the lowest rates in Germany, Finland, Spain – here the borrower with a good history can count on 1-2% per annum. Slightly higher, but still low interest in Italy, the Czech Republic, Slovenia – 2-3%, but in Montenegro and Latvia rates are relatively high – 4-6% “.
Many home loans in Europe are issued with floating rates linked to the Euribor – the European interbank offer rate. It has recently decreased steadily, making mortgages cheaper. That said, mortgage rates can vary significantly for different recipients and different objects – each case is studied individually. But in general, they do not exceed 3%.
Mortgage terms in European banks are similar to those in other countries. For example, in order to obtain such a loan you will need a down payment. Its size varies from 20% to 50% of the value of housing and depends on the quality of the object and the reliability of the borrower. European banks carefully check the credit history of the borrowers, current income, availability of collateral, as well as the object of real estate – its liquidity, market value and prospects.
“For example, in Germany and Slovenia, it is easier to take on credit a relatively large amount, such as € 500 thousand to buy a profitable commercial property with a ten-year lease agreement, than € 50 thousand to buy secondary housing in a small town. By the way, many investors use the bank’s estimate as a kind of signal: if the bank offers a loan terms worse than average (higher down payment or interest rate), it means that he found in the object serious risks,” – said Anastasia Faley.
There are also additional costs when applying for a mortgage – opening a credit line, additional fees and insurances. Banks reduce their risks through compulsory insurance and loan origination fees. As a result, when using a mortgage, the buyer’s costs increase by 1-2% of the property price.
Can foreigners get a mortgage in Europe?
Foreigners on an equal basis with locals can take advantage of mortgage programs when buying a home abroad. Foreigners often use loans when buying property in Germany, the Czech Republic, Spain. Local banks work with non-residents, but the requirements are higher, and the conditions are worse. Rates for Foreigners, as a rule, 1-2% higher than for local or foreigners with residence permits, and equity requires more.
Also, there may be difficulties with proof of ability to pay. Even “white”, but unstable (eg, income varies greatly depending on the occasional bonus) wages can raise questions. For example, in Italy or Greece, a foreigner without an official income earned in the euro area, the loan will not get.
What documents are needed
Ekaterina Shabalina, Tranio lawyer:
- The situation is individual and depends on who the borrower is (for example, a Foreigners but living in Europe, or a Foreigners living in Russia), and on the internal policy of each individual bank.
To summarize, as a rule, almost all banks ask for the following things from a foreigner:
- personal documents:
Passport; marriage contract (if any);
Tax numbers (sometimes you even need to specially register with the tax authorities of the state where the mortgage is planned);
proof of address;
can provide a resume (so that the potential borrower was more understandable to the bank) and letters of recommendation from other banks, where the borrower “proved himself a reliable customer.
- Data on financial situation:
Income information with proof (e.g., tax returns, income certificates, information on interest on deposits, etc.);
Asset information (other assets – e.g. deposits) with confirmation; ideally if the borrower has assets/business in the bank’s country – this enhances the bank’s credibility;
Records of debts, other credits and loans.
They may ask for proof of taxes paid in the potential borrower’s country of tax residency.
- Information about the property being considered for mortgage and documentation pertaining to the property.
Examples of Low-Rate Countries
Mortgage in Spain is one of the most popular financial instruments. Borrowed money when buying a home here uses not only locals but also foreigners. According to estimates Tranio, a mortgage in Spain, draws up every second home buyer. Rates are at 2-3%. They can be fixed, floating or mixed. Mortgages are issued with a maximum term of 30 years, the amount of the down payment varies from 20% to 50%. Restrictions on the age of the borrower – 80 years at the time of repayment of the loan.
“Foreigners in Spain can easily get a mortgage, the conditions are almost the same as for the locals. The only thing is that the down payment for non-residents will be higher. Only locals are allowed to make a down payment of 20% unlike foreigners, “
Mortgage at 110%
Before the crisis 2008-2009 in Spain, gave loans of 110% of the price of the object – not only that the bank was willing to fully fund the cost of the apartment, so he also agreed to pay all related costs. As a result, people took two or four objects, as expected for a long growth market and did not need the down payment. When problems arose, all these objects returned to the banks. With the consequences of such a policy in Spain can not deal until now: almost every month there is news of mass sales of real estate accumulated on the balance in banks, although the main pool of distressed assets has been sold.
Mortgage in German banks is one of the cheapest in Europe. For German citizens, the rates are 1-2%. For foreigners, loan rates are higher, an average of 3% per annum. But each borrower is considered individually. First of all, banks check the credit history and solvency of the potential borrower. According to German law, the borrower must earn so much that to pay the mortgage was not more than a third of total monthly income. An important factor is the availability of a down payment, the amount of the transaction and the liquidity of the property itself. The borrower must make a down payment for foreign buyers, as a rule, it is 40-50% of the value of the object.
According to Tranio, mortgage rates in the UK range from 1.95% to 3.5%. Non-residents can get a mortgage in the UK on almost the same terms as citizens. Before the crisis, banks issued mortgages with a small down payment – from 10%. Now you need to make a down payment of 15-25%. Mortgages are issued for a period of 25-30 years. “As for the demand among foreigners, mortgages are asked quite often, but today it is not so easy to get it. Banks require a lot of documents, and it is more difficult for a newcomer to do it, if there is no previous history at least in Europe. Still, it is still realistic and possible, “- said the analyst Tranio.
In Finland, mortgage rates are at 2% per annum. Foreigners can also take out a home loan, the rates will be a little higher – from 3%. Foreigners are easier to get a mortgage if you have income or a bank account in the country, as well as a residence permit. Foreign applicants may face additional difficulties. Some banks require additional documents from the borrower: a residence permit or a guarantor – a Finnish citizen. Foreign borrowers are more thoroughly checked.
The down payment is 25-50% of the value of the property. The mortgage is issued for a period of up to 35 years. The amount of monthly payments should not exceed 30% of the monthly income of the borrower.