Dreaming of a Sun-Drenched Holiday Home? How Can You Finance It Abroad?

In recent years, snagging a second home in a foreign country has become a trend among Brits, with approximately 40% of second homes owned by UK residents nestled overseas. Popular spots include sunny locales like Spain and France. These properties often serve as holiday homes—a trend that has remained stable since 2010.

Purchasing property abroad can be an exciting but daunting venture, especially when it comes to the financials. Traditional mortgages might be tricky to secure for overseas properties, which makes equity release a tempting alternative. But remember, the money released must still cover the original home’s mortgage before it can be used for buying a second home.

Let’s say you want a home in Greece where prices might be €2,073 per square meter in Athens or as low as €566 in Kastoria. The challenge of currency exchange rates can also not be overlooked. If the rate shifts even slightly, it could add thousands to your purchase price due to the currency exchange. To hedge this risk, some opt for a forward contract with a money transfer provider to lock in an exchange rate.

Using Equity Release for Buying Property Abroad

According to Andrew Morris, a senior advisor at Age Partnership, equity release might indeed help with putting down a deposit or even buying a property outright. However, there are significant restrictions. For example, the property must be insured, and you must live in your primary home for six to nine months each year. Also, equity release might only cover a portion of the property’s cost due to borrowing limits influenced by rising interest rates.

Real Life Figures

Towards the end of 2023, the average equity release amount was around £79,000—significantly less than previous years, thanks to higher interest rates. This amount might be enough for a small apartment in Greece but falls short for larger properties in more expensive markets like France or the Netherlands.

Other Financial Considerations

Purchasing an overseas property isn’t just about the acquisition cost. Ongoing expenses such as local taxes, maintenance, insurance, and potential community fees should also be factored into your budget. Plus, the need to manage money transfers to cover these costs could expose you to further exchange rate fluctuations.

Exploring Alternatives

Before jumping into equity release, it’s advisable to consult a financial adviser to explore all available options. Other assets, such as savings or pension pots, might offer a more economical solution or provide more flexibility than tying up your primary residence in a loan.

While buying that dream villa in Spain or a quaint cottage in France might sound like the perfect retirement plan, it’s crucial to fully understand the implications of using equity release to fund such purchases. It’s a complex financial decision with long-term consequences and costs that should be carefully weighed against the benefits of owning a holiday home abroad. Always seek professional financial advice to ensure that your retirement savings are protected while fulfilling your overseas home dreams.