International property finance - securing the best deal

£2 billion is the amount of money people overspend on their mortgages each year according to a recent survey by the UK Consumer Association. Not an insignificant sum you will agree and one that no homeowner would want to contribute to consciously. That said, so many of us fall into the category above so what can you do about getting the best deal for your international property purchase.

Lenders have historically been keen to raise rates but reticent to drop them in line with fluctuations in interest rates. In the UK, there has already been 4 interest rate hikes this year and the UAE banks recently made rate announcements of changes upwards. That said, we borrowers have been enjoying very attractive rates recently and the ability to secure cheap money has been plentiful. Investors seem to have forgotten the double digit interest rates of the 80's which crucified the UK property market. Some pundits are now saying that we are facing a similar prospect and hence the UK real estate sector is cooling down. Whatever your view, global interest rates have been their lowest since the war and in some countries they are zero. Since most of this information has been widely promulgated throughout the media, why are we (borrowers) still, at the end of the day, paying way over the odds?

One of the main reasons in my opinion is apathy. Many investors who I have spoken to with regards to reviewing their mortgage options cannot be bothered with the hassle. "Hassle" - What hassle? For the sake of a few phone calls and a couple of signatures you could be saving tens of thousands of pounds (Dhs, Dollars, Euros whatever) on your mortgage. It is this apathy that Lenders (namely Banks and Building Societies) hope that their customers are afflicted with. I am not ruling myself out here either - even though my Company specialises in international property finance in an array of currencies, I employ a mortgage broker to do it for me. Now I am lucky since there are a bunch of them in my office that can do that for me, but it is also very easy for you to employ them too. A good mortgage broker will identify the right solution for you at the interest rate that meets your requirement. There are literally thousands of mortgage options in the UK market and the number of solutions in Dubai is expanding all the time. If you do not explore all your options you could be missing out. Similarly, if you are lazy (like me!) then get a specialist mortgage broker like the one I have. The fees to secure his or her services is far outweighed by the massive savings in interest.

If we manage to break the apathy syndrome, we (Globaleye) usually find superior solutions to the one you may have with an alternative Lender. However, sometimes this can be achieved just by asking the existing Lender for better terms - if you do not ask you will never know. Moreover, when they know a mortgage broker is involved they are more likely to succumb since they know that the broker can easily take that business elsewhere. When taking the hassle factor in to context, gone are the days when rearranging standing orders/DD, obtaining valuations and legal expenses were complex. It is common practice in the UK for active borrowers (ex-apathetics) to review their options and switch Lenders at a drop of a hat. The days of loyalty to one Bank or Building Society for life are diminishing - active borrowers want the best deal and will not flinch at the prospect of dumping their old Lender. As a result, International Lenders have had to become competitive responding to the demands of their fickle active consumers. Nonetheless - the £2bn figure above is still a staggering statistic.

The other problem facing borrowers other than apathy is diluted apathy. Typically we find many borrowers have only gone to one source for a deal i.e. their bank to arrange finance for their property venture. At present, the UAE does not offer multiple lending options so the diluted apathy argument may not hold so well here. However, in the international arena there are many international property finance solutions to choose from. Not only that, we can mix the international with the domestic borrowing solutions to get the desired result. This becomes particularly apparent for foreign investors purchasing property in Dubai. And since most investors are buying their property in Dubai through an offshore structure, it is important to structure your financial affairs correctly (Click here for more details).

Borrowers can become confused with the terminology and the mechanics of their mortgage. It is worthwhile having someone describe to you the uses of a tracker, fixed rate, capped, interest only and repayment option just in case there is any over-hang on your non-status scheme. If that sentence needs clarification, then get yourself a broker. It is important to understand what you can and cannot do with your mortgage finance. There are some interesting clauses and caveats we have unearthed in local property finance options that you should be aware of. If you are financing from overseas, you need to consider the impact that exchange rates may have on you. Once again, your bank may not offer the best exchange rate whereas a specialist FX broker may offer you a better spot deal. Look at the present £/Dhs exchange rate compared to what it has been - for example if you were moving a £100k to Dubai last year to buy your place in the sun you would be ~ £15000 out of pocket compared to what the rate is now. The only way to protect yourself as best you can is using someone who can impart this knowledge and expertise. And on the subject of protection, this is another area we find many investors are woefully lacking. If you fall off your perch or suffer a critical illness while you still have a mortgage, it would be nice to know that some form of protection kicks in and alleviates the financial trauma of such an event. Selling your property to cover the loan may not be an option, prices may be down or for estate reasons the proceeds will not cover the outstanding loan.

Most investors buying property in Dubai are doing so through some special purpose vehicle or similar offshore entity. This is in order to circumvent Sharia issues, transfer costs and potential tax liabilities (see issue 6 of this magazine). Your lender must be aware well in advance if you are using such offshore structures since it will have a bearing on the terms you secure.

Securing the best deal for you is probably out there - you just don't know how to find it. Solution; get someone to find it for you! Do not attempt to become an expert yourself - get a broker to do it. When your car has had an accident, you don't do a crash-course (no pun intended) in mechanics to fix it do you? Task the right person to do the job and get the solutions available so you can make the right decision for your property purchase. There are enough vagaries with international property purchase - this is one that can be eliminated quite simply.