The truth about mortgages in Morocco

So, you’ve done your research to include the whys and wherefores of property investment in various so-called emerging destinations of the world, and at last narrowed it down to Morocco.  One of the most important considerations when deciding to invest abroad is money, how to raise it to purchase your dream property and how to repatriate it once your investment strategy has run its course.

Mortgages – what to expect

As a non-resident, you can apply for a Moroccan Dirham mortgage to cover up to a maximum of 70% of the property price and it covers a period of 25 years or until age 70.  Typical interest rates are currently around 5.13% which can be fixed for five years or revised annually, so a certain amount of flexibility does exist in the lending system.  Interest rate bands are set twice yearly in January and July and all banks in Morocco must operate within these bands. 

Be aware, however, of some of the facts before taking the plunge. Firstly, the government will levy a tax of 10% of the interest payment.  This is deducted by the bank at source, effectively slightly increasing your monthly costs; secondly, you may be required to keep 3 months re-payment installments in your bank account as a form of deposit; and finally, that the entire process could take quite a bit longer than ‘back-home’,  in fact, it is quite usual to wait for a slow, bureaucratic service that may linger some 2 to 3 months from application to completion. 

Prior to completion, you will therefore have plenty of time to personally go to the bank to present all necessary original documentation and sign bank account opening forms.  You will also need to set up a direct debit with your bank at home to cover mortgage payments, even if you intend to use rental income to pay for the mortgage – both these are standard requirements of the Moroccan banks. 

The banks will usually assess all your liabilities in your home country and expect you not to exceed an approximate debt to income ratio of net 35%.  They will not usually assess buy-to-let income from the UK, but this can sometimes go on a case by case basis, depending upon how exposed to this your income is.

Another factor to be aware of when raising finance in Morocco is that, by law, banks are only permitted to grant one mortgage per client.  You can, of course, buy as many properties as you like, but all except one must be bought in cash. Furthermore, each bank will ask you to make a sworn declaration that you have you have no other mortgages in Morocco – it’s not clear how the authorities would treat a non-resident who does not declare other mortgages but it would be advisable not to put them to the test!

Repatriation of funds

Once you have achieved successful mortgage finance in Morocco, enjoyed the benefits of your property, whether for an off-plan flip investment, a second or holiday home, or a buy-to-let option for a longer term investment, you may now be looking to take your profits out of Morocco.  This is possible, but again under certain conditions, and it is important to be aware of your rights now, before taking on a mortgage commitment.

You can repatriate any monies physically transferred into Morocco for the purchase, as well as money paid off the capital of the mortgage for the term you have held it, but you cannot take away the interest payments.  In addition to this money, you may take profits, minus 20% capital gains tax. 

The example below, supplied by Heather Chambers at International Mortgage Solutions, clearly explains the situation.

If you are a cash buyer:

At sale you can take back € 105.000, plus profits, minus capital gains tax, up to another € 105.000.

Cash buyers can take back the money invested into the purchase plus the closure costs and profits up to € 105.000.

If you take a mortgage against a property not located in Morocco, then you become a cash buyer as far as the Moroccan government is concerned and all the funds will be seen to have been physically moved to Morocco. In short, you can take profits out of the country, up to the same level as monies you moved into Morocco in the first place, plus the physical funds moved into Morocco. 

If you are a mortgage buyer using your Moroccan property as security:

*At sale you can take back  € 35.000 moved into Morocco, assuming € 5k is paid off mortgage  €   5.000
Total                                            € 40.000

Upon sale, you are permitted to repatriate the € 40.000 deposit and mortgage repayments, plus the profit, minus capital gains up to another € 40.000.

If capital growth and net profits do not exceed € 40k then you can take back all your original funds, plus all your profit; however, any profits above the € 40k will have to remain in Morocco.

It is important to be aware of the possible limitation that a mortgage taken out in Morocco represents. Namely that your funds will not qualify as monies moved into Morocco, which is why it you will be more limited in the amount of profit that can be taken back at a later date.

It is clear that taking out a mortgage, rather than paying in cash, will indeed limit the amount of profit you can take out the country, unless of course you run the mortgage for the entire term and make the capital repayments in full.  A good idea is to look into alternative methods of finance, for all or part of your purchase, such as equity release in your home country or even the injection of cash reserves, thus allowing you to move more funds into Morocco, opening up scope for taking out a higher level of profit at resale.

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