Can owners of homes abroad get mortgage holidays due to Covid-19?
While almost one in five UK mortgage holders have been granted a payment holiday, foreign banks seem reluctant to offer the same assistance to British owners of second homes abroad. You may be able to negotiate on an individual basis however according to overseas mortgage specialist, Simon Conn.
We asked Simon for his insights into which countries, if any, are sympathetic to British buyers during these unprecedented times.
“With the continual on-going crisis with Covid-19 (which is not only affecting the UK market), I have carried out some initial investigations into how the economic problems are affecting clients who already own overseas properties, such as a holiday/investment or future retirement home.
Although each country will have its own set rules/interpretations of how they will deal with each client on a case by case basis, it should be noted:-
- Lenders will be unlikely to negotiate, as they do not want to be put in a similar position to the last worldwide economic crisis where they were left with many repossessions, which resulted in a collapse of their local property market
- The cost of chasing a bad debt can be both costly and an administration burden
- It is recognised that for many clients this is a temporary financial problem that should be hopefully resolved before the end of this year, as the world markets slowly recover
Examples of feedback I received from some of the most popular second home-owning countries, are as follows:
In France the government has not forced the banks to defer mortgage payments. At present it is only an obligation on business/commercial lending.
Some banks are prepared to consider deferring mortgage commitments on a case by case basis.
Clients should check their mortgage offers, because some banks allow clients to defer one payment each year, subject to a maximum number of times over the term of the mortgage.
If a client does not have the capacity to make payments, then an application can be made for an ‘out of policy decision’ by clarifying their current economic and business circumstances for the bank’s consideration. However, there is no guarantee the bank will accept and currently they are not obliged to do so.
In Italy mortgage contracts normally have a clause that enables a 12-month holiday.
The first step borrowers should take is to review the clause and their eligibility and, if appropriate, make the request to their bank to activate. This applies regardless of the borrower’s nationality.
It has recently been announced that British and other non-Italian nationalities can possibly renegotiate their loans – especially where they started a loan years ago at higher rates. Assistance from a specific Italian lawyer could help negotiations and increase the chances of success (check the AIPP directory here for member lawyers).
The majority of banks are currently only providing holidays for primary home-owners, as requested by the Portuguese government.
At this time, there is no defined information on holiday/second home-owners.
Generally speaking, payment holidays are not available for second homes in Spain as they are not covered under the recent changes in the law.
Banks are asking clients to exhaust all options in their home countries first and, if necessary, they will then assist if the client is still unable to meet the repayments.
However, banks will take a view on a case by case basis as they do not want more bad debt on their books.
Some banks, for example, will allow interest-only for a period. Other banks are offering other forms of credit in order to bridge the short-term lack of income, but this really is looked at case by case with each situation and each lender.
Only government backed loans, such as Fannie Mae, Freddie Mac, FHA and VA, are guaranteed to receive assistance with payment holidays.
As the vast majority of foreign national mortgages are for 2nd homes or investment properties, they are not eligible for this relief and it is down to each individual lender or service provider as to what they can offer.
Some lenders may offer a payment holiday for 1 or 2 months, but nothing beyond that. Some lenders are offering no assistance at all.
Taking all the feedback above, it still may be worth contacting your lender in each country/jurisdiction for an up-to-date local position. Each institution/bank manager can often make their own decisions based on the current and future overall financial position for both you and the bank.
In conclusion, Covid-19 as both a virus and its impact on financial and economic markets, is changing daily. Advice given today could be out of date within a few weeks.
Our thanks to Simon Conn for this article.
Simon Conn has over 35 years’ experience in the overseas property market and has worked successfully during that period for a number of major financial services companies. He is especially well known within the overseas mortgage industry and is a regular media commentator on matters relating to the purchase or refinancing of overseas property.
Contact Simon for a free mortgage assessment here