Guide to Buying a House Abroad
At any one time, upwards of five million Britons are considering either buying a holiday home overseas, purchasing a place abroad for investment or contemplating retiring to a sunnier country, according to Channel 4’s A Place in the Sun.
But before you jump into the decision over whether or not to buy abroad - you need to think carefully about the decision you're making and why. A number of factors need to be taken into consideration, so ask yourself the following questions:
- What is this house like in winter?
- What happens to the local area in the off season?
- Do you want to go to the same place every year?
- Are you prepared to spend your holidays organising foreign builders, roping in friends and doing the hard graft yourself?
- Have you considered the cost of getting to your holiday home? Cheap flights have opened up large parts of Europe to British buyers, but don’t assume that those routes will be there forever of or that prices will stay low - especially in peak seasons.
Looking for a profit?
Think about why you want to buy a place in the sun. If you're looking for a lifestyle change; a place to visit regularly and enjoy over the longterm, or even rent out when you're not there, then buying a home abroad could be the right decision.
But if you're looking at a foreign property as an investment that you want to sell at a later date for a profit, then you might well be disappointed.
The global economic downturn that began in 2008 caused property prices to drop across Europe - where 75% of Brits own foreign homes - putting many homeowners into negative equity.
But it wasn’t all bad. While most respondents felt that their homes had lost value, they were relaxed about it, perhaps because of a healthy lettings market.
How do I find a home abroad?
If you do decide to go ahead with your dream for a home in the sun, you'll need to do some research.
Most people spot something while they are on holiday – though you should bear in mind that a break from the office coupled with copious amounts of sun and sangria can make almost anywhere seem appealing.
Otherwise, several magazines list foreign properties for sale, including Homes Overseas - plus there are hundreds of websites offering overseas sales.
How do I raise the money?
If you can buy with cash, do it. You will own the property outright without increasing your mortgage debt, which will mean fewer bills.
If you don't have the cash, there are two ways to pay for a foreign home. You can extend your main mortgage, or you can get a new mortgage for the property. Remortgaging your UK home might be a cheap way of raising cash, but you may not be able to get a remortgage for more than 75% of your property's value. And you have to remember that you risk losing your home if you cannot keep up payments.
The other option is to take out a second mortgage on your holiday home. Several high street companies offer mortgages overseas, including Santander and Barclays, though as with most mortgages you will usually need at least 10% of the price in cash.
Can I get a mortgage in the local currency?
Yes, but you need to be aware of all the risks. Taking out a foreign currency mortgage could be dangerous. You are exposed to currency fluctuations: the pound can move against the euro or the dollar - if it weakens, your payments will increase.
On the other hand if you are buying property in another country your home will be valued in that currency so it could make more sense to borrow in that currency.
How long will it take to complete?
It depends on the country you are buying in, but buying a property in Europe can take up to 20 weeks. Be aware that the longer it takes to complete the transaction the more at risk you are from rate fluctuations, which could add thousands to the real cost of the property in the time it takes to complete the sale.
You will also have to look into the specific buying regulations for your chosen country. France for example, where some 25% of Brits choose to buy a home abroad, is known for its strict lending policies.
I don't speak the language
You will need a reputable, local solicitor and valuer. Your bank or mortgage lender should be able to help you find professionals who also speak English.
The Federation of Overseas Property Developers, Agents and Consultants has a list of lawyers who specialise in buying abroad. Beware that in some countries lawyers act for you and the seller, so make sure you're getting independent advice. Talk to a British lawyer before you sign anything, and remember that you might not be able to pull out of an agreed offer as you can in England and Wales.
Are there any hidden costs?
Almost certainly. Britain has some of the cheapest home-buying costs in Europe. For example, French legal fees are high - ranging between 10% and 18% of the house price. There is also a regional tax and an occupancy tax if you live there more than eight months a year. Other countries, such as Cyprus, you might face fees of as much as 20% of the property value.
What about day to day running costs?
The buying process is the not the end of the expense. Check carefully what local taxes you must pay, and be aware that in many blocks of flats you have to pay a service charge. You'll need to open a local bank account, as services such as water and electricity may only connect you if you sign a direct debit. Local bills must be paid in local currency - this costs money to buy and in some cases foreign banks charge extra for transactions.
Are there tax implications?
Yes. If you rent out your property abroad, the income you earn will have to be declared to the British taxman. Check out the tax laws of the country you're buying in. There may be implications if you rent or sell the house, though many countries have reciprocal tax agreements with the UK so that you don't end up paying tax twice.
You also need to make a will, as local inheritance tax laws may also come into play. Most of Europe is governed by Napoleonic law, which means that your children and spouse will be entitled to a share of your estate. This can create inheritance tax problems in the UK, where only assets left to a spouse are exempt from inheritance tax - so make sure that you get good legal advice.
How do I insure my home?
Ask your own home insurer if they offer a deal to insure a property abroad. Otherwise you will be able to get home insurance abroad, though you might need to seek advice if you don’t speak the language yourself.
- If you want to grab a bargain when buying a house, read our guide to doing so at a property auction.
- Get far more details about buying a property in any location with our detailed article on the subject.
- Learn how to properly view a property before you make any rash decisions.
- Understand the basics of doing up property for a profit with our handy summary.