will be higher set up costs. 3%-4% of the amount
borrowed would not be unusual
You will pay local interest rates, which are likely to
be lower than UK rates.
You will not tie up your UK assets.
There will be a balance between your assets
(the house) and your liabilities
(the mortgage debt). Many experts
think that this is desirable.
If you can’t keep up the payments you will lose your
holiday home, not your main home.
If you are renting out your property you may be entitled
to set off the cost of the mortgage against income
received so reducing you overseas tax bill
The mortgage will reduce the net value of your home
overseas. This normally reduces the overseas inheritance
tax payable when you die. This is particularly important
if the inheritance tax rate overseas is more than the
tax rate in the UK or if you will pay no UK inheritance
tax-because, for example, you will be leaving your
estate to your husband or wife.
The overseas mortgage will also reduce your liability to
wealth tax in Bulgaria. This is because the tax is
calculated on the value of your home after deduction of
the outstanding mortgage.
If you are going to repay the mortgage from your UK
earnings you will be exposed to a major exchange rate
risk. This can dwarf the potential savings on interest
payments. The £ Starlings has varied in value against
the Euro, for example, from 1,40 to 1, 74. The Euro is a
relatively recent creation. Over a longer term the
variation can be even greater. For example, £1 was
sometimes worth 285 Spanish pesetas, sometimes 162
Spanish pesetas. A monthly repayment of 600 Euros would
therefore sometimes have cost you £428 and sometimes
£344. The capital value of 100,000 Euro mortgage would
similarly, in £Sterling terms, have varied from £71,428
to £57,471. This is simply as a result of the exchange
There is a potential UK tax trap. You must ensure that
the overseas mortgage documentation complies not only
with local law but also with UK tax law.
The right decision depends entirely upon your own
financial circumstances. The cost of making the wrong
decision will amount to a great deal of money. We
strongly advise that you seek advice about whether to
choose the UK or other overseas mortgage.