Holiday or second home-owners, who have funded an overseas property through a foreign bank mortgage, have tough negotiations ahead if they seek assistance during the Covid-19 pandemic. Many lenders are very reluctant to assist further, although the one exception could be Italy.
Overseas property and finance specialist Simon Conn said that Italian mortgage contracts normally had a clause to allow a 12-month payment holiday.
Simon used his extensive global contacts to assess the impact of the pandemic on UK-owned properties around the world.
He discovered that banks in the most popular overseas property markets - France, Spain, Portugal and the USA – were fairly unsympathetic to requests for help. But in Italy, the outlook was far rosier.
“The first step borrowers should take is to review the relevant clause in their Italian mortgage contracts, check their eligibility and, if appropriate, make the request to their bank to activate. This applies regardless of the borrower’s nationality,” Simon explained.
“British and other non-Italian nationalities can possibly renegotiate their loans - especially if they started a loan years ago at higher rates. Assistance from a specialist Italian lawyer could help negotiations and increase the chances of success,” he added.
Over the Channel in France, Monsieur Macron’s 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,” Simon continued. “You should check your mortgage offer, as some banks allow clients to defer one payment each year, subject to a maximum number of times over the term of the mortgage.”
He said that an application could 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,” Simon added.
In Portugal, the majority of banks are currently only providing payment holidays for primary home-owners, as requested by the Portuguese government. There is currently no defined information on holiday/second home-owners.
In Spain, payment holidays are not generally available for second homes 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,” Simon explained. “The banks will take a view on a case by case basis as they do not want more bad debt on their books.
“Some banks will allow interest-only payments 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.”
In the USA, the outlook was similar. “Only government backed loans, such as Fannie Mae, Freddie Mac, FHA and VA, are guaranteed to receive assistance with payment holidays,” Simon explained.
“As the vast majority of foreign national mortgages are for second 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,” he said.
Some lenders may offer a payment holiday for one or two months, but nothing beyond that. Some lenders are offering no assistance at all, Simon added.
“So while the global picture is not great, 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,” he said.
Simon warned that Covid-19 - as both a virus and its impact on financial and economic markets – was changing daily. Advice given today could be out of date within a few weeks.