Sponsored Article written by Adrienne W. Stranere with legal contribution from Italian lawyer, Nick Metta partner of Italian law firm Studio Legale Metta. Article discusses: Italian property, Italian mortgage, property financing.
After the holidays most of us are feeling a bit deflated as we look at our bank balance statements. Even if we purchased fewer and less extravagant gifts this year, we are all more concerned with costs we will face in 2011. For those who already own a property in Italy, there may even be some doubts as to keeping this “luxury” during these times of global economic hardship. Many questions weigh on the pleasure of owning a little piece of Italy: How can I justify a second property with such uncertainty about my financial future? Will I get renters this year to off-set costs? Will the airlines cut back on low-cost flights making it more expensive to get to Italy and enjoy my villa? Will I have enough cash-flow to do the necessary renovation and property maintenance?
Before you consider selling the Italian property you worked so hard to get, it could be opportune to look into using it as a means of producing cash not just absorbing it. And I don’t mean through renting it out. There is a very interesting little-known fact that is very important for non-Italians who own property in Italy: It is possible to obtain an Italian mortgage on your Italian property even if you are not an Italian resident. This means that you could take out a mortgage on your Italian property to free up cash that is needed for things such as renovations, maintenance and bills.
You should view your Italian home as the valuable asset that it is. We all know that an Italian property gives you immense pleasure during hard-earned vacation time as well as bragging rights with friends back home. But, more importantly, it gives you access to money from Italian banks whose loaning parameters may be more interesting than those of your home country bank. Perhaps you already have a mortgage out on your primary residence and are strapped for cash. Look at your Italian property as a source of cash-flow and not just a looming bill to be paid.
To get the details on non-Italians obtaining an Italian mortgage, I spoke to Studio Legale Metta’s Italian property lawyer, Nick Metta, who specialises in all aspects of the property purchase including financing.
Nick, I hadn’t thought it possible for a non-Italian to get an Italian mortgage.
NM: It is true that non-Italians being able to get mortgages on their Italian properties is not a widely known fact. I have many clients who are really feeling the credit crunch so I’ve looked into a variety of ways for them to finance their purchase, or simply get cash value out of the Italian property they already own. Clients have also come to me thinking they had to sell their Italian residence and I was able to help them secure a mortgage to give them the cushion they needed without having to sell.
Who is eligible for an Italian mortgage?
NM: Almost any Italian property owner, of any nationality, who meets the following three main requirements: 1) clear solvency history; 2) documented capacity to comply with the refund payment plan; and 3) a property value higher than the requested amount to be financed.
Are there any advantages to taking out an Italian mortgage as opposed to a home country mortgage?
NM: Typically, clients who need financing to complete the property purchase are looking at two options. The first would be to take out an Italian mortgage or, the second, to remortgage or secure an additional loan on their property in their home country.
Both approaches have advantages and disadvantages.
- An important aspect to consider if your home country is not in the Eurozone is that having a mortgage in a foreign currency means that repayment instalments will fluctuate with the exchange rate. Over the course of the mortgage, let’s say 10 to15 years, this can result in significant shifts in monthly payments, even with a fixed-rate mortgage.
- A second important aspect is that Italian mortgage lenders might have more or less conservative lending policies than home country lenders. A requestor may find it easier or harder to get approved for an Italian mortgage than it would be to secure an additional loan on an existing home country property.
- A third important aspect is that historically Eurozone interest rates have been slightly lower than UK and U.S. rates, making euro mortgages cheaper for certain owners. There is of course no guarantee that this will continue to be true, but it could be an important factor to look into at the time of taking out the mortgage.
What are the typical steps involved in getting an Italian mortgage?
NM: There are all the standard elements that one would expect when applying for a mortgage such as, the most basic, filling out the application with personal information. Seems simple, right? But, as with many things involved in purchasing and owning a property in a foreign country, it is more complicated than it seems. If all the documents are in Italian it may not be that simple for a foreigner who doesn’t speak the language.
To address this and other obstacles for our clients, my firm has established a working relationship with a UK bank that is present here in Italy. Since we do many loans with them per year on behalf of foreign clients we are used to working together on such matters and have a smooth process in place. Another benefit is that much of their loan process documentation is in English. In addition to making our clients feel more comfortable it also saves time and money.
The next typical step after the bank receives the mortgage application is that the bank appoints a surveyor to inspect the property and issue a quotation of its value. The amount the bank will grant the requestor is based on the survey and is typically not more than 60 to 80 percent of the value. It is important to note however that these rules vary from bank to bank and the amount can also vary depending on the nationality and residency of the requestor.
After the amount to be loaned and the terms have been established, the bank asks an Italian notary public to certify that the property is free from any burden or existing mortgage. Following this certification that the property is currently clear, the notary must formalize the mortgage deed and then the funds are released to the borrower. The mortgage is formalized through a deed which is distinct from the property title deed.
Does the mortgage requestor need to be present in Italy to formalize the mortgage in front of the Notary?
NM: Not necessarily. It is possible to give a limited power of attorney to an Italian-speaking party in Italy who could then formalize the mortgage on behalf of the person requesting the mortgage. My clients often find this a great solution as it results in a smoother, faster and cheaper means of completing the mortgage documentation. Bestowing power of attorney saves not only on the trip to Italy but, if the person designated speaks Italian, one also saves on the cost of translating the deed into the native language as well as interpreter fees during the deed signing in front of the notary.
But what about the power of attorney? Does the mortgage requestor need to be present in Italy to formalize that document?
NM: The requestor actually has the option to either formalize the power of attorney in Italy in front of an Italian notary, or he can do it in his home country. If the power of attorney is formalized in the home country it must then be rendered legal for international matters which, for certain nationalities such as UK and U.S. citizens, means obtaining an apostille stamp. This too, of course, has an additional fee and processing time to be factored in. Citizens of countries such as Ireland, France, Belgium and Denmark do not need the apostille as there are special accords between these nations and Italy.
So nationality and residency really have an impact on all steps of the process. Regarding the timing, about how long does the process take?
NM: After the Italian mortgage application has been submitted to the bank, it usually takes approximately two months to complete the procedure and then release the funds for property purchase completion purposes.
What costs are involved?
NM: Typically, there is the mortgage application fee, an interpreter fee for those who don’t speak Italian, the survey fee for a property value surveyor to assess the property, the Italian notary fee, the mortgage broker fee, mortgage taxes, and insurance costs. For these costs one should budget approximately 5 to 10 percent of the loan amount for mortgages from 50,000 to 100,000 euro. The percentage would go down as the borrowed amount increases.
Are there any ways to save on these costs?
NM: There are number of ways to cut mortgage costs. A few examples are: using an independent insurance company to insure the property instead of the insurance put forth by the bank, avoiding unnecessary activities and formalities, or if the borrower has Italian citizenship but lives abroad, money can also be saved. There are other money saving measures that could be pertinent, it all depends on the specific circumstances.
For example, another interesting way you can save on mortgage costs and processing time is if the vendor already has a mortgage in place on the property. Under Italian law the new purchaser can legally take over an existing mortgage on the property under the same terms and conditions. In Italy the mortgage is seen as belonging to the property and not to the person who owns it. Therefore, if you are happy with the terms of the previous owner’s mortgage you might be able to undertake it at no cost and no fee. To provide a rough example, in the case of a mortgage of 50,000 euro, undertaking the existing mortgage would save you approximately 5,000 euro.
Therefore, looking at it from a different perspective, if you are able to take out a mortgage on your Italian property now, it might make the property even more appealing should you want to sell it at a later stage.
That’s really interesting! There are many more options for financing an Italian property than I had thought. My British friend was regretfully thinking she might have to sell her place in Sardinia. I’ll have to tell her to talk with you first!
NM: I would be happy to help. My team and I always work to develop a strategic plan which is customized to the client’s needs. This includes financing, taxes, inheritance, corporate or private ownership and many other possibilities. And that brings me to a very important point; each individual person has particular circumstances and different options available based on the specific scenario including factors such as nationality, residency, financial history, and the property itself. Everything we discussed today is general information, current at the time of publication, that is designed to give readers a global idea of financing possibilities. Should anyone wish to see what options are available to address a particular situation, please contact me citing this article and I would be happy to discuss during a complimentary 15 minute phone consultation.
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Nick Metta is a partner at the Italian law firm, Studio Legale Metta. Nick is head of the firm's international department which addresses matters of Italian law involving international parties in areas such as Italian real estate, property financing and Italian inheritance law.
Adrienne W. Stranere is Studio Legale Metta’s business development manager.
The Italian law firm Studio Legale Metta is a boutique firm of Italian Attorneys and Italian Solicitors handling domestic and international casework throughout Italy. For more than 120 years, Italian lawyers of Studio Legale Metta have been representing both private and public entities in the Italian legal system. The firm's partners are admitted at the Italian Supreme Court (Cassazione) as well as the Tribunal of the Rota Romana (Sacra Rota), the highest court of the Vatican.
www.studiolegalemetta.com/en
For more on financing your Italian property and other topics related to Italian real estate, please visit the frequently asked questions area of our web site.
Please check this space on the ItalyMag web site regularly as, on a bimonthly basis, we will be publishing editorials on various aspects of Italian property. Should you have a specific topic you would be interested in having Studio Legale Metta address, please contact us with your idea.
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