Updated 03 December 2020
If a fortnight’s visit just isn’t enough, you might consider the option of buying property abroad. In fact there are many reasons why you might want to do this, from having a holiday home to making an investment. But this tempting prospect comes with a number of risks and can also be a much more convoluted process than buying property in the UK. This quick introduction will help you make sure you know what you’re doing.
Many countries have far lower property prices than in the UK, which can tempt would be homeowners and investors alike. Here are the most popular reasons why you might browse the overseas property markets.
You have a number of options when it comes to raising the money for buying abroad.
If you opt for a mortgage provider based outside the UK, there are a number of things to bear in mind.
The good news is that you might be able to find lower repayment rates than in the UK, especially in some parts of the Eurozone. This could result in a cheaper purchase overall. That said, if your mortgage is in another currency (e.g. euros) then your repayments will be at the mercy of the exchange rate, so if the pound weakens you will end up having to pay more.
Your lender has a duty to tell you if the exchange rate fluctuates by more than 20 per cent, and must give you the option to repay in another currency if this is more affordable for you.
Remember that property transactions outside the UK are not regulated by the FCA. This means that if something goes wrong it may be much harder to obtain compensation. To minimise your risks, always try to use a UK-based mortgage broker who knows the overseas market well.
You often need a bigger deposit for a property overseas, as a percentage of the total price. However, if property prices are significantly lower than in the UK, the actual sum may be similar or even less. But it is important to find out whether this deposit is refundable or not (in some countries it isn’t). Therefore be careful when and how you pay your deposit: only pay it to a bonded estate agent or lawyer, and only once you have the initial contract.
A property purchase is always a major financial commitment, so all the usual risks apply. And if you’re buying in a country with different laws, regulations and language, you need to be extra careful. Here are the main pitfalls and how to avoid them.
What if you have agreed a price in euros, for example, only for the pound to fall significantly against the euro before the buying process completes? If you are already stretching your funds, such a change could make your property too expensive. Talk to your mortgage adviser in advance about the best ways to safeguard against this.
When it comes to the laws of a foreign country, take nothing for granted. Some countries or regions may have laws that seem bizarre or unfair (such as the Land Grab laws in some parts of Spain) and these may catch buyers unawares. Engage an independent lawyer (a fluent English-speaking if you’re not fluent in their language) who is qualified and experienced in international transactions and the law of the country you’re dealing with. Check they are also registered with the Law Society in the UK and that they have professional indemnity insurance.
If you’re not fluent in the local language, use an interpreter whom you trust (preferably one who is also your legal representative). This may sound paranoid, but avoid using any interpreter or lawyer who is recommend by your seller or their estate agent, as they may not have your best interests in mind. Even if there’s no deliberate deception, a simple misunderstanding can be very costly.
Distance can also be a problem with overseas transactions. Do as much as you can in person, rather than over the phone, as this can minimise communication problems. An extra plane ticket will cost less than a botched property deal.
In any property purchase, there are additional expenses on top of your mortgage and deposit. When buying abroad, there are often several more, including:
There may also be extra taxes to pay, such as:
Even if your purchase seems to be problem-free, prevent any nasty surprises by double-checking the following:
Buying a property overseas can be significantly cheaper than buying in the UK – but as you can see, you need to work quite hard for those savings. A good specialist mortgage broker and solicitor can make the task a lot easier.
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