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How to Finance a Second Home Purchase

Want to know how to finance a second home purchase? Here are some great tips with useful information to help you avoid making mistakes along the way. Ten years ago, owning a second property abroad was for many a pipe dream, however today more and more people are choosing to buy a holiday home overseas. You may think that the initial rush to buy a Bulgarian dream home has tailed off a little with the value of pound falling on the currency markets and UK house prices leveling out yet buying your Bulgarian pad is still very much an affordable option. Quest Bulgaria looks at some of the ways that you can finance your second home in Bulgaria.

Evidently one way to finance your Bulgarian residence is to use your savings. The thing to consider here is firstly how much money you will be saving on annual vacations by having your own house abroad and secondly, how much money you stand to make when you sell your holiday home. Last year according to the global property guide, Bulgaria experienced the highest real estate increases in the world!

Effectively if you are prepared to sit back and take a long term view on your savings, you could earn a better rate of return through buying property here than leaving your money in a UK deposit account or gambling on the stock market.

Many second homeowners choose to finance their Balkan base by refinancing their existing home in the UK. Indeed, your British home is possibly your biggest asset and if you have owned it for a significant period of time it has more than likely increased in value. Research by The Economist shows that over the last 10 years UK homes have increased on average by an incredible 213%. According to the Communities and Local Government website, the average price of a home in Britain today is a staggering GBP 220,195. This means that you could be sitting on a large amount of equity that you could use to finance a home in Bulgaria. The way to do this is to contact your mortgage lender and enquire about drawing down equity from your UK home. If you are considering buying an off-plan property, which generally requires payment in stages, then the money you receive from remortgaging your house can be put into a high-yield deposit account. Currently such accounts pay an interest rate of six to seven per cent, which is higher than the current UK borrowing costs. This means that the money you have borrowed is actually earning you money whilst you wait for your off-plan property to be completed.

Another way to finance your home in the sun is to take out a mortgage and presently there are lots of lenders both in the UK and Bulgaria who are willing to provide mortgages solely for this purpose. The main thing to consider here is whether to take out a mortgage in the UK or in Bulgaria. Many Bulgarian banks currently offer competitive mortgages with varying loan terms. It pays to shop around between the two countries to find the lender with the best rates of interest. Some lenders provide loans in other currencies such as Euros or Leva, whereas others will allow you to take out a multi-currency mortgage, which enables you to swap the currency that the debt is held in as well as the interest charged.

Most Bulgarian lenders presently offer interest rates in the region of 7% with a maximum loan term of 25 years. They generally expect a minimum 25% deposit thus leaving you to borrow up to 75% of the property costs, depending upon the location of the property. Those taking out a mortgage should beware that lenders both UK and Bulgarian apply an additional loading to the base rate. The greatest benefit to using a currency other than the pound is that you can benefit from swings in currencies e.g. if you borrow in pounds to pay for a property in euros and the pound rises in value against the euro then the amount of the loan falls. Naturally, this trend can work against you and you need to consider all options before making your final decision.

There are ways to shield your money from fluctuations in currencies; one way is to take a “forward contract,” whereby your lender will discharge your money in stages. This is particularly suitable for those who intend to buy off plan, where the property is paid for in installments usually linked to the completion of a particular stage in the building process. Often these payments run over 12 to 18 months, which can be a lifetime on the currency markets!

All things considered, it is worth thinking very hard about the most suitable way for you to finance your second home. If you are using your savings, don’t spend everything you have on a second home unless you are sure you can make up additional savings quickly to cover you for life’s unexpected events. If you are taking out a mortgage ensure that you can cover the payments each month without being overstretched and bear in mind that interest rates can and do go up! If you are remortgaging bear in mind that you are adding extra financial burdens to your existing finances, if you are struggling before doing this then this is not the route for you.

Remember though that property in Bulgaria is a great way to save money on annual vacation costs, or plan for your retirement. The rate of property increases over the last five years has more than outperformed UK deposit account interest rates.

Approching your bank could prove to be a good option when wanting to know how to finance a second home purchase. They are experts in this field and they will offer the best, honest advice possible.