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Buyer beware
Buyer, beware Jan 2005
Buying property abroad can be a tricky business. Here's
some top tips on how to buy your dream overseas property Living the holiday
dream is one of the main reasons more and more Brits decide to buy a property
abroad. But Simon Conn, senior partner at specialist adviser Conti Financial
Services, believes there are a number of other reasons why so many of us are
investing in homes abroad. “Lower interest rates, lots of media coverage, and
those with UK buy-to-let experience now looking to other markets,” says Conn.
But there is still a lot to consider before you start going down this route.
Starting point
“It’s important to understand why you are buying,” explains Ian Smith, head of
European operations at Banco Halifax Hispania. “This sounds obvious, but if you
initially buy a holiday home, but then later decide you also want to rent it
out, you could quite easily buy the wrong property.” What’s ideal for you might
not be ideal for letting.
Financing
Once this is established, the first thing you should do is look at the finance.
There are three options: buy outright from personal resources such as savings;
release equity from a UK property; or take out an
overseas mortgage.
If you release equity from your UK home by
remortgaging, you have the
advantage that your income is in the same currency as your debt; however, you
could be missing out on a lower interest rate abroad. But with an overseas
mortgage in another currency, you’re taking on exchange-rate risk. One solution
is to fix your exchange rate upfront for your purchase with companies like
Travelex, TTT Moneycorp or HIFX. This means your monthly payments won’t
fluctuate with currency movements.
For the mortgage,
you can approach foreign lenders direct, but specialist financial advisers like
Conti Financial Services and PropertyFinance4Less can source a mortgage for you.
Alternatively, some more familiar UK names offer overseas mortgages. Banco
Halifax Hispania is Halifax’s Spanish lending arm, Barclays offers mortgages in
France, Spain and Portugal, and the Woolwich is prepared to lend on properties
in Italy. At Norwich & Peterborough Building Society you can borrow for
purchases on the Costa Blanca and Costa del Sol in Spain.
The professionals
The next thing to do is hire an independent, reputable solicitor to carry out a
survey and check that the title is true and inherits no debts. The Law Society
(020 7242 1222) or the embassy or consulate of your chosen country should be
able to help you with suggested solicitors. “It might cost a bit more, but
nowhere near the cost of difficulties arising as a result of short-cutting the
process,” warns Smith.
No hidden surprises No two countries have identical property laws, so don’t
assume everything’s the same as in the UK. Be aware of all purchase-related
costs. There may be additional local property taxes, for example the plusvalia
in Spain, payable on the increased value of the land since the last transaction.
Find out your tax liabilities – you might have to pay income tax on any rental
or your estate could be faced with inheritance or capital gains tax.
Follow the tips suggested in the box on this page and remember to approach a
foreign purchase as prudently as you would a UK purchase and you could be
joining the millions of other Brits walking off into the sunset.
Top tips for buying abroad
1 Never sign a contract you don’t understand.
2 Seek specialist advice from independent solicitors, architects and surveyors
proficient in your chosen country’s laws and homebuying processes.
3 Ensure an independent valuation of the property is carried out prior to sale.
4 Ensure you do not inherit a debt on the property before you purchase (a
solicitor should be able to check this).
5 Always give yourself a ’cooling off` period before buying.
6 If you are arranging finance on the property, ensure that this is stated in
any contract and you have an ‘opt-out clause’ if the loan is not agreed to
ensure any deposit paid is refunded.
7 Try to arrange your mortgage finance ‘in principle’ before agreeing to
purchase the property.
8 Arrange your mortgage in the currency that you earn your salary in where
possible.
9 Be aware of the costs charged by the legal and government authorities for
property purchase in your chosen country.
10 Open a bank account in your chosen country and ensure you get a Certificate
of Importation for the money you bring in from your home country.
11 Set up standing orders in a local bank account to meet bills and taxes.
12 Remember to add costs such as lawyers’ fees, taxes and insurance as well as
the asking price of the property to the total costs.
Source: Conti Financial Services
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