Mortgages Made Easy
- February 20th, 2019
- in PROPERTY
If you’ve got your heart set on a beach villa on Virgin Gorda and are gearing up to look for a mortgage, the BVI has options.
Six local banks offer loan financing, though you should prepare yourself for what they expect before strolling into one of their various offices in Road Town.
First off, you should be able to demonstrate an awareness of all the additional costs that come with purchasing a home here.
“It’s a great place to buy a property, but it’s not cheap,” said Sjoerd Koster, the general manager of VP Bank (BVI) Limited.
Apart from the property’s purchase price itself, other expenses include the stamp duty – which for foreigners is 12 percent of the purchase cost or market value of the home, whichever is higher – as well as legal fees, insurance premiums, architectural rates, furniture purchases, and assorted other transactional costs, according to general manager.
Those additional expenditures, Koster explained, fall under the umbrella of “soft costs” – which usually aren’t eligible for mortgage financing.
“It’s good to get that clear picture of what the total costs will be once you purchase the property,” he noted.
Getting that clear picture involves doing things like talking to insurance companies beforehand, the general manager added.
Koster stressed the importance of hiring the right people when buying a home and acquiring a mortgage in the BVI.
“If you make sure that you engage with the professionals that are required for a transaction – that means a BVI lawyer, a BVI real estate agent, a structural engineer to verify the property, making sure that a boundary survey has been done by a BVI surveyor – I think you can make sure there are no snags,” he explained.
The bank will request the boundary survey to ensure the building on the property you intend to buy isn’t encroaching on any other properties, and that no neighbouring buildings are encroaching on yours.
VP Bank also requires structural surveys on properties it finances, regardless of their age. That was something that became especially important in the wake of Hurricane Irma, Koster explained.
“I think it’s also now an industry standard,” he added.
Obviously, the bank will also want to know your financial background: Typically, they’ll require a personal financial statement that shows your confirmed income, rental income, liquid assets, and other loans or debts, according to Koster.
Additionally, if you own your own business, VP Bank will usually ask for three years-worth of accounts on that business, the GM added. Foreigners will also need to demonstrate a non-belonger landholding license.
BVI banks tend to offer a 70-90 percent loan-to-value ratio, according to Koster. Interest rates tend to be higher than those in the United States or the United Kingdom, by what the general manager estimated was one to two percent.
“The main reason for that is for the banks here there’s a higher risk because the BVI is a fairly small property market,” he explained. “There’s less liquidity, meaning there are not as many buyers as you would find in the United States, so if the bank ever had to foreclose on a property, to find a suitable buyer would already be a higher risk, so the banks price in that risk into their interest rates that they offer to the client.”
Though modern technology makes it possible to handle a lot of the mortgage process remotely, buyers shouldn’t underestimate the benefit of face time.
“Although you don’t need to be here in person, it does help to come to the BVI and sit down with your bank,” Koster said.
In-person interactions can increase the bank’s confidence, the GM explained, especially by demonstrating that you’ve actually spent significant time on the property you intend to invest in.
“You want to have visited the property at least several times to understand where the property sits with regards to views, location towards the sunrise and sunset, what the prevailing winds are on the property – it’s a process that you have to go through in the BVI once you’re buying a property,” he said. “It’s not just, ‘I like the property and I want to buy it,’ but you really need to understand where it’s located and what’s important about the spot where it’s located.”
In the BVI, location can have an unpredictable impact on many elements of your home – like internet service.
“You shouldn’t necessarily assume that you’re going to get great internet service [at all locations in the BVI],” said Rusty Henderson, the owner of AVL Limited, a company that specialises in integrating audio, video and lighting control systems into homes and resorts. “It’s worth asking around a bit first, because that could be a real problem.”
VP Bank also offers construction financing for those interested in building their own homes, as well as mortgages for the plots of land the construction takes place on, according to Koster.
“In construction financing, the client does make it a little more challenging for themselves, because you’re not just buying a home on an island, you’re actually going to source a lot of material from off island to a little island,” he explained. “The clients will have to think about the logistics for building materials.”
The first step to obtaining financing for construction is producing clearly defined architectural plans for the project, and then an estimate on the proposed cost of development, according to Koster. VP Bank recommends obtaining three independent quotations for construction proposals, he added.
VP Bank also typically only works with a shortlist of contractors who’ve built homes for other clients or have a clear track record of constructing residences in the BVI, the GM noted.
“Nowadays, it’s even more important – because there’s a big construction boom – that the contractor doesn’t just have construction experience but really construction experience in building homes,” Koster said.
Contractors, he explained, need to have the necessary ability, but also the necessary cash flow: The average build of a well-finished, three-bedroom home “in desirable areas” typically costs about $750,000-$1 million.