DTel: On remortgaging a UK property when your living abroad

Cash Clinic: When re-mortgaging can be a pain in Spain
By Harriet Meyer

Daily Telegraph
(Filed: 31/10/2005)

Re-mortgaging can be a tricky process when you no longer live in the
country where you bought the property, as Liz Wootton is discovering.

Miss Wootton, 33, has been living in Barcelona, Spain, for the past two
years, after leaving her job as a producer at Bloomberg to re-train as
an English teacher. She currently rents a room in a three-bedroom flat
in the Eixample district.

She said: "I did the teaching course at International House and it went
well so they offered me a job. I love it here because the atmosphere is
great and it is a far less stressful lifestyle than in London. I can
live on my salary and have a decent life, although if I want to go away
on holiday it is a struggle."

Before coming to Spain she bought a one-bedroom flat in Forest Hill,
south-east London. She bought in 2001 for =A3100,000 and the property is
now worth around =A3140,000.


Barcelona's Sagrada Familia Cathedral: Liz Wootton is hoping to buy in
Spain
She rents this out for =A3650 a month and pays the income into an HSBC
Current Account. She said: "The two-year fixed-rate on my mortgage is
now at an end and so the rate has gone up, and my monthly repayments
have risen by about =A3100 to about =A3600. I want to change lenders but
am having difficulty renegotiating my mortgage."

Miss Wootton is also hoping to buy a property in Spain in the future.

Vital Statistics


Name: Liz Wootton, 33.

Location: Barcelona, Spain.

Salary: Around =8012,000 before tax a year.

Occupation: English teacher at International House.

Bank Accounts: La Caixa Current Account, into which her salary is paid,
and an HSBC Current Account, into which she pays the rental income from
her London flat.

Assets: One-bedroom flat in Forest Hill, south-east London, which she
rents out for =A3650 a month.

Debt: =A380,000 25-year mortgage with Nationwide Building Society.

Pension: None.

Insurance: None

What the experts say

Moving your mortgage to a better rate can prove problematic in Miss
Wootton's situation, agreed the advisers, but there are lenders who are
willing to help.

Re-Mortgaging: Nationwide will not offer Liz another deal because her
property is now let out, said Ray Boulger of broker John Charcol, and
it does not offer buy-to-let rates. Also, as she is now living in
Spain, lenders are less willing to offer her a mortgage.

He added: "She is now paying Nationwide's standard variable rate (SVR),
which is 5.89pc, and although plenty of buy-to-let mortgages are
available at a lower rate than this many UK lenders will not lend to
expats.

"A major problem lenders face is that they cannot easily do a credit
check on non-UK residents, as in general the credit reference agencies
do not provide cross-border checks." However, several UK lenders will
lend to expats, although some charge a higher rate, and the new
mortgage will be based on the rental income, not her earned income. The
rental income is quite adequate to support a re-mortgage of the same
amount.

For example, Derbyshire Building Society offers a mortgage linked to
Euro interest rates, although the mortgage is in sterling, said Mr
Boulger. It is a five-year tracker with a rate of 2.37pc above 3 month
Euribor, which gives a current pay rate of 4.51pc. Other mortgages
based on UK interest rates are available but the rates will be higher.

There will invariably be some sort of arrangement or booking fee to pay
the new lender which will be in the region of a few hundred pounds,
added Jonathan Spring-Rice of independent financial adviser Towry Law.

The decision as to whether she maintains the property or not should be
based on how long she intends to live in Spain, agreed the advisers.

Mr Spring-Rice said: "If it is not her intention to return to the UK,
and she wishes to remain in Spain on a long term basis of 10 years or
more, then it may be sensible to consider selling the UK property as
she could use the remaining equity as a deposit on a property in Spain.

"Given the current Euro mortgage rates and if the property was modest
she would be able to reduce the outgoings below the rental payment and
at the same time would have the advantage of the asset of the property
in her base currency."

Property Buying: Buying property in Spain requires a reasonable amount
of initial funds, said Jonathan Fry of IFA Jonathan Fry & Co. As well
as the cost of the property, the buyer will be liable for IVA, a
Spanish tax, which is 7pc on a new property, plus typically 0.5pc stamp
duty, he explained. For a second-hand property there is a property
transfer tax of 6pc of the sale price.

For example, the cost to buy a home for about =80128,000 is around
=8011,000. This includes IVA of about =809,000 at 7pc, legal fees of
=80900, notary's fees of =80600, and stamp duty of 0.5pc at about
=80640.

Pension: If Miss Wootton plans to retire abroad, she can continue to
receive UK State pension based upon the entitlement she has already
accrued. She may need to consider paying Class 3 voluntary national
insurance contributions (Nics) to continue entitlement to a UK pension
if the stay in Spain is a relatively short one, said Mr Fry.

Miss Wootton should write to The UK Pensions Service informing them
that she has moved to Spain and give them her new address. Their
address is International Pension Centre, Tyne View Park,
Newcastle-upon-Tyne NE98 1BA. Telephone Int 44 191 218 7777.

To check on her pension rights in Spain she should look at
www.ukinspain.com/english, which is a UK government website dedicated
to providing information for those re-locating to Spain from the UK.



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