Buying a home abroad
Buying a property abroad seems to be fast becoming a British obsession. The idea of owning a bolt-hole in the sun is not only viewed as a significant lifestyle choice, but also as an important investment either to bring in a regular income or to provide a lump-sum nest egg to supplement retirement.
The idea might be appealing, but the reality can often be more nightmare than wildest dream. Purchasing property can be a difficult and frustrating process at the best of times, but add in the complexities of a foreign legal system, language and property ownership culture and you could have a recipe for disaster.
Each country, whether it is Spain, Bulgaria or the USA, has its own peculiarities and processes. This fact sheet does not attempt to outline the dos and don'ts of buying property in each country, but seeks to list the main pitfalls you should try to avoid when purchasing abroad.
Overstretching Your Finances
It can be tempting when you see that perfect property that is just a few thousand Euros above your budget, but the budget is there for a reason. Overstretching yourself at the onset could create problems later on, especially when the other costs associated with buying abroad become apparent later on down the process (tax, professional fees, management and maintenance fees).
Ask your estate agent for details of the outgoings payable every year to maintain the property:
- Annual real estate tax
- Community fees
- Charges for rubbish collection
- Water rates
- Electricity charges
- Property income and wealth tax
Don't think you will be safe from the UK tax man. Any rental income from your overseas property will have to be declared in the UK. There may also be local tax implications if you rent or sell the house although many countries have reciprocal tax agreements with the UK so that you will not end up paying tax twice. Only your main home is exempt from capital gains tax in the UK so expect a bill on any profit you make when you sell your overseas property.
You need to ask yourself if you can really afford ANY property abroad, especially if the property is secured against your UK home.
Buying Property Unseen
Never, ever buy a property without visiting it first. It is surprising how many people do. Even if you buy off-plan, it is still essential to visit the site to get a feel for the area and local amenities.
Buying Without Professional Advice
Use qualified professionals to protect your interests and make the purchase of your new home a stress-free experience. Estate agents are a good source of advice. Only negotiate with ones that are officially registered and hold a licence. Ensure you have a good lawyer with an excellent command of English and the native tongue, to deal with the endless stream of rules and regulations.
Before you have decided on a property it's important to be fully aware of the legal process and costs involved in your purchase. Obtain professional advice and check your finances, taking account of these additional costs.
Failing to Check Agent Credentials
Is your estate agent a qualified agent? Are they bonded to hold a deposit on your behalf? What guarantees are there if your developer goes bust?
Putting a Deposit Down Too Early
You need to find out if your deposit is returnable. In most jurisdictions, paying a deposit commits you to the purchase. Don't hand over any money, even to a third party, unless you are convinced you want to buy.
Choosing a Property Based on Price Alone
If a property seems like a bargain, it is probably cheap for a reason. Make sure you visit the property and fully research the location before making any commitments.
Forgetting That Exchange Rates Do Fluctuate
Don't forget to factor in any ongoing exchange costs. Will you be able to afford your commitments if the exchange rate changes?
Relying On Existing Transport Links
Just because a cheap airline flies to the location now, it doesn't mean they will in the future. The cost of budget flights are also on the rise, and will continue to do so if the UK Government pursues further green policies designed to cut emissions.
Forgetting to Protect Your Asset
Ask your UK home insurer whether they provide overseas cover. If not, there are specialist companies in the UK which can help if you would prefer not to use a foreign insurer whose policies tend to provide more limited cover.
Failing to Adjust Your Will
Inheritance rules differ greatly from country to country. If you want to protect your property asset for the benefit of your heirs, you will need to write a will that addresses local inheritance rules. You may have to make two wills, one for your UK assets, and one for your overseas assets.
How Can We Help?
If you are seeking to release equity from your existing home to help finance the purchase of a property abroad, we can help. We can also assist you in your purchase either by representing you ourselves, or recommending an experienced, English speaking lawyer in your new property's location.
For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.