Buying property abroad: what do I need to consider?

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 to buying a property abroad will help you make sure you know what you’re doing.

Why buy a property abroad?

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.

• A holiday home: If you fall in love with a destination, it may make more financial sense to have a place of your own there.
• Buy-to-let: Relatively low prices may enable you to buy rental property overseas that you couldn’t afford at home, to generate a steady income.
• Investment: You may identify an overseas property hotspot where prices are predicted to rise significantly. If you get in quick, you may be able to take advantage of this.
• Relocation (partial or permanent): If you plan to leave the UK or stay here for only part of the year, you may wish to set up a permanent base in your new country of residence.

Funding an overseas property purchase

You have a number of options when it comes to raising the money for buying abroad.

• Cash: If you have a lump sum available, buying for cash may be realistic, especially in a country with significantly lower property prices such as Greece or Spain.
• Remortgage a UK property: You may be able to remortgage your current home (i.e. borrow more money against it), especially if your property has risen in value since you bought it. However this is a significant risk, so consult a mortgage adviser.
• Get a mortgage from a UK bank: If you can find a UK mortgage provider that also has offices in the country where you’re buying, you may be able to obtain a mortgage from them. Your mortgage broker can help you find one.
• Use an overseas mortgage provider: If you can’t get an overseas mortgage through a UK-based bank, your final option is to find an overseas lender. Some specialist mortgage brokers offer this service (and may also be able to advise you on which estate agents and legal advisers to use in your destination country).

Taking out a mortgage overseas

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.

Your deposit

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.

The risks of buying property abroad

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.

Exchange rate changes

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.

Unfamiliar laws

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.

Poor or biased communication

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.

Extra costs and taxes

In any property purchase, there are additional expenses on top of your mortgage and deposit.

When buying abroad, there are often several more, including:

• shipping costs
• international bank transfer fees
• translator fees
• additional legal fees (e.g. to make a will, which in some countries is compulsory)
• refuse collection and drainage fees
• community fees (if you’re buying on a large development)

There may also be extra taxes to pay, such as:

• annual property tax
• income tax (if the property generates income)

Hidden issues with the property

Even if your purchase seems to be problem-free, prevent any nasty surprises by double-checking the following:

• Does the seller really own the title deeds to all the property/land they are selling?
• Are there any outstanding bills or tax demands on the property?
• Are all the necessary utilities connected and working well?
• Are there any local issues to be aware of (e.g. flooding, droughts, unreliable utilities, crime)?

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.