You may be considering taking out a mortgage to finance your Italian property purchase or renovation project, opting to go through a UK mortgage provider or alternatively by approaching a local Italian bank that deals in mortgages. But you need to appreciate that things in Italy tend to work slower and often less efficiently than they do in the UK when it comes to mortgage financing.
As a general rule, Italian banks are more conservative in the mortgage packages they offer; usually only lending up to 85% of the property value (60% is more common) and applying fixed rates. This is possibly why the Italian mortgage market has not been over exposed to sub prime loans – however, it also means it can be trickier to secure a mortgage if you’re a non-resident buyer.
In this article our resident Italian property expert Alison Harris takes us through the realities of obtaining an Italian mortgage with a case study of a client of hers who, having waited a staggering 3 years just to obtain planning permission, owing to the fact that the property in question was located on a site of significant archaeological interest, decided to apply for a mortgage to pay for extensive renovations to turn a disused stable building into a rustic and idyllic country home, complete with small vineyard. This is the story of how the mortgage application progressed…
“My clients chose to go with one of Italy’s largest banks, since at the time, they were offering more favourable terms than any UK bank that specialised in Italian mortgages. They made their application in January 2008, filing all the necessary documents such as proof of earnings, bank statements, identity documents along with all purchase documents and extensive surveys relating to the property which was to be used as security on the loan.
“Some 6 months passed, just enough time to allow the bank the time to deliberate, review and process the paperwork originally submitted. At this stage the local branch of the bank sent their surveyor to inspect the property which was still in a dilapidated state and without a roof. Subject to completion of the renovation work, they valued the property at €160,000, and subsequently approved a fixed rate loan of €80,000, repayable over the standard 15 years. This was great news since it was the full amount my clients had requested.
“After having to supply further evidence to support their application because of my clients’ self-employed status, the application process was still dragging on in July 2008 at which point they encountered a huge setback. Victims of the worldwide financial crisis, the bank was taken over. Problems with staff training and integration of the new IT systems meant that the application was not progressed over the summer at all. Eventually, the head office of the new bank decided that my clients’ mortgage application had to be treated as a fresh application as their criteria were now considerably different from those of the subsidiary bank through whom my client had originally applied.
“On the basis of the photos of the derelict property that were included in the original application, the head office of the new bank revalued the property and revised the offer to only €55,000 in November 2008. 11 months on from the original application and with the works nearing completion, this was a disaster for my clients and left them distraught. I was fully employed at this stage, persuading the local branch of the bank that the original offer should be honoured. Frustratingly, the Head Office would have no direct contact with their clients, so the Manager of the local branch had to act as intermediary throughout this testing time. Innumerable phone calls, letters and meetings later, they agreed to send a new surveyor to revalue the property in January 2009 – a year after the process began.
“With so much at stake, the surveyor’s visit was tense, particularly when he refused to give my clients an idea of his valuation at the end of his site visit. The surveyor put in his report to the bank and after more correspondence, phone calls, submission of the new floor plans, and another agonising wait, the bank eventually agreed to lending the full amount of €80,000 once again. At the time of writing my clients are still pending release of the mortgage funds. They have been assured (once again) by the bank that the release of the funds would be expedited to the end of this week, bypassing the usual further 11 days wait once the notary has filed the deed at the Land Registry. However, this is all subject to the final mortgage contract being reviewed by the notary, who will draw up the mortgage deed and ensure that it is duly signed by my clients’ power of attorney.
“Having been let down at so many stages in the process despite assurances from the bank, my clients say they remain optimistic that they will have the opportunity to enjoy the funds in time for their grape harvesting party in early September!
“On a more positive note though, interest rates have dropped considerably since July 2008, offering my clients a more favourable rate, and as a further gesture of goodwill the bank has agreed to waive its administrative charge of 1%.”
Thanks to Alison’s interventions, her understanding of the Italian system and language, her clients benefitted from her assistance in getting their mortgage application re-reviewed. However, as you can see the process for obtaining finance can be far from straightforward, and therefore it can really help to employ an intermediary or full project manager when you take on the purchase, development or renovation of property in Italy. If you would like to contact Alison and see how she can potentially help you will your quest for that dream home in Italy, her details follow: –