How Do Foreign Banks Affect Local Mortgages?

Carol Finance Tips

In this day and age it’s not uncommon for international property buyers to invest in new homes away from their own countries. There are two main ways to do this when borrowing money from a bank. The first is to go to a local lender that offers mortgages that can be used to purchase a home abroad. The second is to approach a bank in the country where the house is being bought.

Although both have their pros and cons, the latter option involving a local bank can certainly be more beneficial. These types of financial institutes deal in the currency of the country in question and they will often be able to process claims far quicker than other lenders in outlying areas and countries. Most homes will be evaluated by lenders and their own agents, so being nearby can certainly speed up the purchase process to say the least.

But why do so many international buyers still choose to go with their own banks; banks that could be considered foreign, as they will operate away from the country where the property is being bought? Some people may prefer this method out of comfort, whilst others may instead do so in habit. Although having a firm grasp of the foreign bank can be an advantage, is it really that much more beneficial than setting up a new account with a local lender and taking advantage of their potential?

What do foreign banks offer?

If the borrower lived in the United Kingdom, but wanted to borrow an amount of cash to cover the cost of a home in Australia they can do so via their own regional lenders, or through those located in the intended country. The UK operate in GBP, or Great British pounds, and so the agreed repayments would typically be made in this currency.

If the buyer was to relocate to Australia, a country that uses AUD, or the Australian Dollar, then they might end up finding that fluctuations in exchange rates actually detract from their finances each month. Although the British bank will convert the cash into AUD when it comes time to paying for the home – they may still require payments in GBP. If the currencies fluctuate, this could leave the borrower suffering as a result.

How can local (country-orientated) banks be of benefit?

In 90% of cases the borrower will be in the newly purchased home, with the other 10% of instances relating to properties that may have been bought for future investments. What this means is that in the majority of scenarios, the home buyer will relocate to the country in which they have bought their new house.

Their money will therefore likely be converted into the local currency and unless they have extensive savings in their original currency that the foreign bank can take; they might find themselves having to convert cash in their new country, to their older currency. When choosing a local bank, this will never be a concern.

Lenders in the country where the home has been purchased will operate under their own form of currency as standard, so if the buyer has relocated permanently, they will undoubtedly have transferred the cash in their foreign bank to a new one in the country of residence. This means that there are no concerns where exchange rates are concerned and the risk of being stung by a drop in currency will be minimal, if not non-existent.

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