Soaring house values in Ireland are fuelling the rush to buy holiday homes, with most people who are buying abroad borrowing against their now valuable family home. The exceptions are people buying in France and Spain, where mortgages are easy to arrange.
Most buyers are remortgaging their homes to cover most if not all the cost of buying a place abroad. Irish financial institutions look at the borrowers' ability to repay the loan from current income.
They will, however, take a dim view of applicants who must get rental income from the property to meet repayments, says Simply Mortgages managing director Peter Bastable.
This is because rental incomes are far from guaranteed - unless of you are buying a sale-and-leaseback property.
If buying in France and Spain, it makes good sense to borrow from a local lender, such as Entennial bank (now merged with Crédit Foncier) in France.
First Hibernian mortgage broker Harry Saul recommends doing so because, first, the loan is against the value of the holiday house instead of the family home and, second, "the bank will do a due diligence on the developer, which guarantees that the developer is for real". It also means you can offset your mortgage against rental income for tax purposes.
It's quick too. "In France, you can submit an application on Thursday and get an approval on Tuesday," says Saul. French banks will lend 80 to 85 per cent of the price of the holiday home at rates from 2.7 per cent; many buyers then borrow the deposit against their family home.
The bureaucracy and slowness of banking systems in most other countries encourages Irish buyers to borrow at home, but Spanish banks have recently become more user-friendly. Solicitor-cum-Spanish property agent Tom McGrath says it is now quite easy to get a 75 per cent mortgage over 15 years on a Spanish property at interest rates from 2.95 per cent - and to get it within a day or so of asking.
Generally, people are advised to budget 10 per cent of the purchase price to cover stamp duty on foreign purchases (although this will vary from market to market), as well as administrative costs, such as hiring independent legal and tax advisers.
The cashing-in of the Government's Special Savings Incentive Accounts (SSIAs) from next year are not expected to have much impact on this market. The average €20,000 saved won't buy much more than a new car or a fancy holiday.
