Money homeMortgages
- Mortgages
- Compare mortgages
- Remortgage
- 100% mortgages
- Fixed-rate mortgages
- Variable-rate mortgages
- Interest-only mortgages
- Repayment mortgages
- Tracker mortgages
- Mortgage protection - Do I need it? And if so, why?
- International mortgages
- Mortgage calculator
- Mortgage guides
- Mortgages glossary
- Mortgage directory
- Online credit report
- Commercial mortgages – An introduction
- Mortgage overpayment
- Offset mortgages
- Tracker mortgage or fixed-rate mortgage?
- Repossession: What to do if you can’t pay your mortgage
- Mortgage protection and life insurance: What’s the difference?
International Mortgages
Italian mortgages: A beginner’s guide
Updated: Friday 2 March, 2012
By Martin Fagan
Tempted by the relaxed lifestyle, delicious food and great wines of Italy? So much that you dream of buying a property and living there? We explain the basics of getting an Italian mortgage...
Italy is a popular holiday destination for Brits, and many fall so in love with the country they decide to buy a property there. From its beautiful coastlines and bustling cities to the stunning mountains and lakes, Italy has plenty to offer.
If you’ve fallen for Italy’s charms and are thinking about buying a property there, whether as a new home, holiday hideaway or investment, there’s a lot to think about and you may need to get an Italian mortgage.
In this guide we look at the basics of getting a mortgage on an Italian property, explore the different types of products available, and assess the costs involved.
- Italian mortgages: The basics
- Types of Italian mortgages
- Eligibility criteria
- The costs of taking out an Italian mortgage
- Some final points...
Italian mortgages: The basics
Mortgages in Italy are fairly similar to mortgages in the UK, but there are some crucial differences. Here are some basic principles of Italian mortgages:
- Mortgages in Italy are in euros and will be secured against your Italian property.
- Italian mortgages are full status - so when making a mortgage application, you will be required to provide proof of identity, your income and outgoings.
- The maximum loan-to-value ratio (LTV) is typically 80%.
- Italian lenders will assess your ability to repay the mortgage - as a guideline your existing outgoings and new mortgage repayments should not exceed 35% of your gross income.
- Italian lenders will not normally take into account rental income when calculating an applicant’s level of borrowing.
- Terms of Italian mortgages can be between five and 40 years, but loans must be repaid by the age of 85.
Types of Italian mortgages
There are two main types of Italian mortgage you will have to choose from:
- Fixed-rate mortgage – This type of mortgage offers a fixed interest rate for a set period of time. Opting for a fixed-rate Italian mortgage can help you avoid increases in interest rates and because the rate is fixed, your repayments will be the same each month for a set period and this can be helpful for budgeting. Once the fixed-rate period has ended the mortgage will revert to the lender’s standard variable rate.
- Variable rate mortgage – This type of mortgage offers an interest rate that changes over time, usually when changes are made to the European Central Bank base rate. You can usually get an initially lower rate on a variable rate Italian mortgage than a fixed rate Italian mortgage. You will benefit from any reductions in the rate, but need to think carefully about how your finances would cope if there was a sudden increase in the interest rate.
There are also two main ways to repay your mortgage:
- Repayment method – With a repayment Italian mortgage you will make monthly repayments that comprise of the capital you borrowed and the interest on it. You will make these repayments for a set period (the mortgage term) until you have paid off the mortgage completely. This is the most common way to repay an Italian mortgage.
- Interest-only method – With an interest-only Italian mortgage you will make monthly payments that only cover the interest on the amount you borrowed. You will make these repayments for a set period (the mortgage term) and at the end will have to repay the amount you borrowed in a lump sum. To get an interest-only Italian mortgage you will need to be able to prove to the lender that you have in place an alternative repayment vehicle in place - such as an insurance or investment policy or even selling the property and using any growth in value as a means of paying off the mortgage - that will cover the outstanding loan at the end of the mortgage term.
Which type of mortgage and which repayment method suits you will depend on your individual circumstances. Whichever type of mortgage you choose, you should make sure you fully understand the terms of your mortgage before you sign on the dotted line. You should consider using a specialist mortgage broker to help you find the best deal.
Eligibility criteria
Italian lenders will assess your eligibility on your ability to repay the mortgage.
As a guideline, your existing outgoings and new mortgage repayments should not exceed 35% of your gross income. Mortgage, rent, personal loans and maintenance commitments are all considered outgoings.
As well as your salary, a percentage of any rental or investment income you receive can be considered when looking at your income.
When applying for an Italian mortgage, you will be required to provide documents proving you’re who you say you are and that you can afford the repayments. These are likely to include:
- Proof of identity and that you are a UK resident
- Proof of income and outgoings
- Bank statements
- Property details.
The costs of taking out an Italian mortgage
There are many costs that you need to take into account when working out how much it will cost you to buy a property in Italy. As well as your mortgage repayments, costs that you will need to consider will include the following:
- Bank’s arrangement fee
- Bank’s completion costs
- Valuation fee
- Notary fee
- Land registration tax
- Buildings insurance
- Mortgage broker’s fee.
If you plan to get an Italian mortgage, you will also need to think about the costs of setting up an Italian bank account from which to make your repayments in euros.
Some final points...
Getting an Italian mortgage is not always simple, and we would suggest that you use an international mortgage broker with a good amount of experience in the local market.
However, if your job is in the UK and your salary - or any other income such as a pension- is paid to you in sterling, an Italian mortgage - which needs to be paid in euros - will present a currency risk.
This is something buyers must bear in mind, particularly in the current uncertain economic climate. If the ECB raises interest rates across the eurozone and this causes the euro to strengthen against the pound, then this double-whammy of increases could put severe strain on your finances.
THINK CAREFULLY BEFORE SECURING ANY DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP
REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.