Buying property abroad

Published 12th Jul 2007

Many of us British would like to own a home abroad. It may be the perfect pristine white holiday villa overlooking the Med; it may be a cosy ski log cabin on the foothills of the mountains; or it may be a buy-to-let investment in a European city.

Prospective buyers can find property they might be interested in a number of places. This can include looking while you’re away, looking in magazines, and searching the internet. Some UK estate agents also have a foreign property section. The internet is probably the easiest place to start.

Buying with cash is the best and simplest way to fund a purchase. It will give you property ownership straight away, no increase in your mortgage debt, and less worries. Without enough cash to buy the property, you have two basic ways to buy a foreign property. You either remortgage in the UK to raise the money, or you can get a new mortgage. Remortgaging is still a cheap way of raising the capital, but with interest rates rising in the UK, it won’t remain cheap for long. Getting a new mortgage in the UK for the purchase is feasible through lenders such as Halifax, Abbey, Norwich & Peterborough and Barclays. You might also be able to get a mortgage in the country where you’re going to buy, but there are risks involved in this. A mortgage in a foreign currency can be troublesome, with exchange rates for example, but there can be advantages too. More lenders are beginning to offer euro mortgages and that is sure to grow in time.

Time scales can vary a lot, and it may also depend on the type of property you’re buying. For instance an off-plan property may not actually be ready for a year or two, so there’ll be no hurry there. Purchases in France can take 20 weeks; in Spain, Portugal, Italy and Greece it is more likely to be 12 to 18 weeks. But you should not feel rushed when buying abroad; make sure everything is done properly at each stage with all details covered. However, you should be aware that passing time can see exchange rates fluctuate so keep an eye on those too, as a big change could push up the pound sterling price of your property.

You will need a local solicitor and valuer who can obviously speak the language. If you are not offered one, then ask your bank or mortgage lender, who will undoubtedly be able to help you. But be aware that in some countries your solicitor may also be acting on behalf of the seller at the same time, so be sure to get independent advice. It is probably worth talking to a UK lawyer expert in overseas property as well.

Costs mount up and add up. Legal fees abroad tend to be more expensive than in the UK – up to 15% of the purchase price. There may also be regional and occupancy taxes to pay. In Spain fees usually come to about 8-10% of the purchase price. In Italy it mounts up to 8-12%. Bulgaria is growing in popularity and fees there can add 6%, plus the cost for the need to set up a local company at over £1,000.

When you have made your purchase your expenses will carry on. There may be ongoing local taxes, services charges, utility bills, and you will need a local bank account to deal with many of these items.

Renting out the property abroad will mean informing the taxman in the UK, and understand the tax laws in the country – you may need the services of a local accountant.

Similarly, there will probably be tax to pay upon sale, but make sure that you’re not paying tax twice – at home and abroad – as many countries have reciprocal tax agreements with the UK. Remember also to insure your property abroad just as you would at home.

Buying abroad can seem an exciting step, especially if you are planning to use it yourself, at least part of the year. But try to buy as sensibly as you would at home, even if the prices are cheaper where you’re buying. If you’re buying a holiday home or a ski chalet don’t rely on renting your property all year round. If you’re buying for the local rental market in a European city, check the strength of the local market. Will it pay its way for you?

Consider points such as renovation costs, and project management if you’re buying somewhere that needs work. Who will manage the lettings for you and how successful will they be? If it’s a holiday home, do you really want to go there every year? Can you cover all your expenses?

It is easy to think that, as property can be much cheaper in place abroad, that the prices will inevitably go up. But of course, this is not necessarily the case. Be prepared for a stagnant or even dropping market. So don’t buy if ultimately you cannot choose when to sell.

Source: ' Thrifty Scot '

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