| Buying a property abroad is no longer only an option for the rich. Many people are turning their dream of a retirement or holiday home abroad into a reality. So if you too are thinking of making the move, here are some general points to consider:
The mantra location, location, location applies as much when buying abroad as it does at home. That means researching and investigating everything thoroughly. Never act on a whim.
Before you buy, visit the area you are interested in. Spend time there and make sure it's the right place for you. For instance, are there enough facilities for everyday living? Or do the pubs and clubs out-number the shops? Is it over-run with tourists in the summer and dreary in the winter? There is so much you need to know.
You can always learn from others’ experience by consulting those who have done it before. There is no shortage of ex-patriates with their own stories to tell. The Mediterranean coast, in particular, has plenty of ex-pat clubs and societies that you can scour for information.
When looking for local estate agents, shop around until you find one or more that you feel at ease with. Then make sure they are a member of a professional trade body. Use only well-established, recommended companies and beware of anyone who gives you the hard sell.
Property abroad is often cheaper than in Britain but more expensive in terms of local taxes, legal costs and especially agents fees. And the deal can take longer to close than in the UK, perhaps leading to unexpected initial expenses. You’ll probably need more money than you thought.
Fortunately, nowadays more UK lenders are offering mortgages for properties abroad, particularly in Europe. Mortgages are usually available for around 80% of the purchase price and can be in the currency of your choice. Time the purchase right and you can take advantage of currency fluctuations to get more for your money. Time it wrong, and you could lose out.
Do your homework by studying the laws of the country you are moving to. For instance, did you know that in Spain you’ll need a new will, in Spanish, in order to avoid inheritance tax or complicated succession rules? Or that you might inherit debts from a previous vendor?
As well as doing your own homework, make sure you have a good lawyer with an excellent command of English as well as the local language. He or she will be dealing with a stream of rules and regulations on your behalf and must make you aware of unsuspected pitfalls and handle them reliably.
Open an account in a local bank to pay your bills. Be careful not to miss payments - foreign banks are not lenient with those who don't pay up on time.
If you're considering renting out the property when it's empty, bear in mind that advertising your property abroad in the UK could result in tax demands from both the British and foreign authorities.
If you still want to buy abroad, avail yourself of the wealth of related publications and websites on the subject - and take professional advice.
A more detailed guide follows:
Basic Guide
More and more people are now buying properties overseas, either as a second home, to rent as a holiday home and to create a long-term income source or to move to a sunnier climate.The good news is that many UK lenders are offering mortgages to buy properties abroad, particularly in Europe.Nevertheless, buying abroad is not like buying in the UK and the first step should probably be to carefully select your agent. Almost anyone in mainland Europe can become an estate agent and you should check that your overseas agent is a member of a recognised professional body.Buying abroad will generally take longer than a like purchase in the UK, and will probably be more costly in terms of agency fees, local taxes and legal fees Often, the purchaser pays for the vendor's fees as well. Mortgages are usually available for up to 70% or 80% of the purchase price and can be paid in a currency of your choice. Collateral can include the purchaser's existing property and/or the overseas property, and proof of income both earned and/or rental will have to be provided as proof of ability to service the debt.
Step by Step Guide
After following our basic guide, you should be on the right path to purchasing your new holiday home. Now for the complex stuff.
Once you have found that ideal property you will have to negotiate a price with an estate agent. Here are some important points when dealing with foreign estate agents:
- You should understand that the same property is often offered for sale with more than one agent, quite often at differing prices. Obviously, the bigger chains of agencies have higher overheads to contend with.
- The vendor or seller will have an agreement with the agent to pay a commission upon completion of a sale to a client he has introduced.
- The commission to be paid is always reflected in the final price negotiated and can vary from around the 5%-15% mark.
- When choosing an agent, make sure they are an approved GIPE or API member with a current licence; that they offer the best service and information; and attend you with a senior member of staff. Choose an agency with an up-to- date property database.
- A good agent, with their wealth of local knowledge, will help you understand the pro's and con's of different areas. They can save you a lot of time and, as experienced negotiators, will help you reach an agreement with the owner.
This stage will consist of you and your lawyer finalising certain points with the owner. The following points should be negotiated:
The Price:
- The declared price on the title deeds
- Payment method and currency
- Fixtures and fittings
- Furniture
- Who pays which taxes
Take nothing for granted and include every point in the offer. This way you only have to negotiate once and there should be no hold-ups or surprises. This is where the skill of the agent comes into play as the vendor and buyer reach an harmonious agreement. Having funds available at this time will also convince the vendor you are serious and not just browsing.
Once you have paid the reservation deposit (around £2-£4 thousand) you have a period of up to 30 days to exchange the private purchase contract with the vendor. You can arrange for your lawyer to handle both this stage and the completion on your behalf if you are unable to attend. Before your lawyer exchanges contracts, he will have completed the detailed searches and investigations at the land registry in respect of the property. On the day of completion you will sign the title deeds and receive your keys for your new property.Other important points:
- NIE number: You will need an NIE number (fiscal identity number). Even if you are not a property owner, you can then open a bank account.
- Banks: This decision should be taken very carefully. Your own bank may have strong links with foreign banks so consult them before you depart.
- Becoming a resident: Applying for residency differs from country to country but does have its appeals.
- A will: It is advisable to make a will in your new country of residence. Certain countries have particular rulings over foreign wills. Discuss with your lawyer the differences between what you can will in your own country as opposed to where you are buying.
- Inheritance Tax: Ask your lawyer or tax consultant about inheritance tax and how to minimise it. Get advice before you decide in whose name or names the property is to be registered in, especially if you are in your golden years.
- Common Sense: Make sure you clear everything with your lawyer and don't sign anything without their approval.
The sun, sea and sangria of the Costa del Sol has proven popular for people from the UK. Despite increasing prices, there seems to be no downturn as house sales continue to rocket. The following statistics highlight this current trend:
- A market study revealed that the number of residential tourism homes in Spain has doubled in recent years, to more than 3 million, 1.1 million of them owned by foreigners.
- 70% of Spain's residential tourism homes are located in Andalucia and Valencia, principally on the Costa del Sol and specifically in the Marbella area. An additional 65,000 homes are on sale along Spain's coastlines.
- According to the Banco de Espana foreign investment in property in the first six months of 2000 totalled 373,000 million pesetas, 35% more than for the same period in 1999.
- In 1999, foreign property investment totalled 501,000 million pesetas, which was 37% up on the 1998 figures. Of that sum a total of 149,000 million was invested in Costa del Sol a substantial rise from the 119 million total the year before. Future developments look even more promising. Foreign investment plus the improvement of motorways have been a major boost for the area.
The following are all financial points that make the Costa del Sol so appealing:
- Favourable exchange rates
- Low Euro interest rates, mortgages from 5.25% being available for residents and non-residents.
- Good rental property and location. For those who are not just looking for a home in the sun, the Costa del Sol has been one of the leading world property investments in the last five years.
Q. Are there any additional charges or fees that I need to look out for when buying a property abroad? A. As with any house buying process, there are always additional costs involved such as taxes and lawyers' fees and it's important to realise how much these can vary from country to country. The Federation of Overseas Property Developers Agents and Consultants (FOPDAC) estimates that, on average, a buyer can expect to pay about 10%-12% on top of the original purchase price in fees and charges when buying abroad.
Q. How do I find out about the legal aspects of buying a property abroad?
A. FOPDAC produces a series of fact sheets giving legal advice on buying property in various countries including Spain, France, and Portugal. It also has details of reputable local property agents and solicitors in the area where you are looking to buy.
Q. Will I have to pay tax in the UK on the property I have bought abroad?
A. If you decide to rent out your second home, all income generated from this must be declared to the Inland Revenue and this will involve filling out a self-assessment form. Expenses such as mortgage interest, however, can be offset against this and, if you are planning to live in the property for part of the time, you will need to arrange with the Inland Revenue exactly how much of this can be offset against your rental income.
Q. What taxes will I be subject to in the country where I have bought the property?
A. It is likely you will have to pay tax if you rent or sell the property. However, the UK operates double taxation agreements with a number of countries and the Inland Revenue should be able to give you details of these to prevent you having to pay tax both in the UK and where you have bought the property. Some expenses, such as travel, may also be deductible. To find out what you are entitled to, it's worth consulting an organisation such as The Tax Team for independence advice.
Q. How do I insure my new home and its contents?
A. Although insurance can be taken out in any country where you buy the property, many people find difficulties with language and the varying terms and conditions attached to the policy. Tax can often be charged on insurance policies taken out abroad and this can be confusing. Saga's new holiday home cover is written in English with clear terms and conditions, and automatically pays any overseas insurance tax to the relevant government department.
Q. Will my children's inheritance be affected by buying property abroad?
A. Although it's not one of the first things you think about when buying a home overseas, it's important to make the necessary arrangements to avoid any inheritance problems in the future. It is always advisable to take out a will in a country where you hold assets;. However, regulations governing inheritance will vary from country to country so it is important to take proper legal advice from a local expert before making the necessary arrangements
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