Overseas Mortgage ?
There will be higher set up costs. These are typically 3% - 4% of the amount borrowed.
You will pay local interest rates. Of course, at this stage we do not know whether these are likely to be lower or higher 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.
If you are renting out your property you may be entitled to set off the cost of the mortgage against income received, so reducing your 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 any wealth tax in Turkey. 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 £ Sterling has varied in value against the Euro, for example, fromi.40to 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 rate fluctuation!
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 should seek advice about whether to choose the UK or the overseas mortgage.