Articles :: Buying a Home Abroad
Millions of us have that dream to buy property abroad, and thousands have done just that.
Finding the dream house
It is not surprising that a large amount of people actually find their dream home when on holiday. What is strange that a high percentage gives as much thought to buying, as they would do to buying a television in the UK. Well stop there, pause for breath, and take things slowly!
What about the finance?
Ideal if you can find your dream and just arrive with sack fulls of cash. No mortgage no worries. But most of us have to secure finance. There are two main ways to do this, the first, and probably easiest is to extend your own mortgage at home and complete the whole transaction in good old sterling. However, not really the best way. There are numerous Euro Mortgages available, both through UK and foreign sources. The advantage of this is that you will have the majority of the mortgage in Euros and therefore costed in the exchange rate of the Euro. This obviously can work against you as the exchange rate moves up and down. Taking out a foreign currency mortgage could be dangerous. The pound can move against the Euro - if it weakens, your payments will increase
As a general rule a foreign lender will lend upto 70% of the valuation of the property, the remaining 30% is sourced from your own property or savings in the UK. The strange thing is that you may well have found the dream property, agreed a price which you believe to be below market price, but when the mortgage is approved it is for the valuation, not the agreed price. This is fine if you have a higher valuation but can cause problems if lower. So be mindful.
Companies such as Halifax, Abbey, which runs an overseas property service, Norwich & Peterborough building society and Barclays, which specialises in the French market.
You could also consider a mortgage in the local currency, but you need to be aware of all the risks. Properties generally have continued to rise in price. 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 take out a mortgage in that currency. Abbey and Barclays both offer Euro mortgages but the drawback is that you have to be paid in Euros to be eligible. Best way is set up a bank account in the country of choice and negotiate a mortgage direct. In Spain Solbank provide an excellent service. Go to https://www.solbank.com/en/ they are extremely familiar in doing business with the UK market. One of the best means is recommendation, have a look at our member’s profiles and links page. Mortgages are quoted and set against the Eurobar, which is like our base rate. We are at a five-year high so the hope is the rate will go down. Currently running at around 4%. Have a look at the link on the Solbank site which will give you some boring looking graphs, take the time to understand them they will be invaluable in making a choice as to whether to borrow locally or at home!
How long does it all take
If you are buying in France it can take upto 20 weeks. Spain, Italy, Portugal and Cyprus seem to be between 2 to 18 weeks.
Another area to be aware of is actually transferring the cash to enable the purchase. Do not transfer sterling into a foreign sterling account at a bank. You will get charged both ends of the transaction and get tourist exchange rates. Best bet is to contact a good Foreign Exchange specialist. They will quote a ‘spot’ price, which includes their commission charges. So what you get quoted is what you will get. However check first. I have used Parasolfx.
Speak to Evan Bazzard. Very helpful and efficient. The golden rule is don’t transfer less than £2000. Otherwise you will not get the best rate.
Halifax will arrange both forward and spot transactions to other banks for a charge. Transferrals to the Spanish arm of Halifax are free.
Currencies Direct specialise in helping people who are buying property abroad and can offer spot and forward transactions where they fix a rate for up to two years. Travelex (http://www.travelex.com) have an information pack on how to carry out a spot or forward transaction up to 12 months in advance.
What about the language
You wouldn’t buy a house in the UK without a solicitor, so don’t fall into the trap of buying a house in Europe without one. There are many available, but don’t use one recommended by your estate agent. Have a look at our links page and also what recommendations our members can make. Make sure you're getting independent advice. Talk to a British lawyer before you sign anything.
How much does all this cost?
Well probably more than you thought. The UK has a pretty competitive market in buying services. In Europe you can expect numerous extra costs that arise from local taxes, purchase tax, finance charges. The bank will charge you for setting up your bank account, arranging the mortgage.
(In Spain) typically a bank will levy a 1-2% charge on the mortgage advance, don’t accept this, quote another bank offering 0.5% and they will drop to that level. French legal fees are high - ranging between 10% and 15% of the house price. There is also a regional tax and an occupancy tax if you live there more than eight months a year.
In Spain, valuations will cost you, and the public notary must sign loans. Taxes and legal fees will normally amount to 8%-10% of the property value. There is a common approach called ‘black money’ this is literally agreeing two prices one that is declared and one between you and the owner. It is illegal but seems to be seen as a jolly Spanish Custom, trouble is you save nothing in the long term with increased capital gains liability, and also the Spanish authorities are cracking down and prosecuting people caught making such agreements. Be firm don’t accept it.
In Italy, costs are between 8% and 12%.
In Bulgaria, which is growing in popularity with buyers, there is a notary tax and local taxes to pay, which may add a total 3% to the sale price. Solicitors can cost a further 3%, while setting up a company to make the purchase will cost £1,000 or more.
What about Tax on my dream home?
If you rent out then you have to declare the income. Keep all receipts for improvements as this can be offset against the income. Check out the tax laws of the country you're buying in. There may be implications if you rent or sell the house. Many countries have reciprocal tax agreements with the UK so that you don't end up paying tax twice. Also make a will, as local inheritance tax laws may also come into play.
In France if there is no will a property cannot be passed solely to a spouse, but must be shared among any children.
You should also consider the extra insurance costs. There are a number of specialist insurers who cater for this. But you can also ask your own home insurer if they offer a deal to insure a property abroad. Again have a look at the links on this site.
What can go wrong? It’s a dream
Don’t let the dream become a nightmare. There are numerous horror stories of ‘landgrab’ poorly built properties etc. My advice is get a reputable local advisor who is not acting as an agent to accompany you. The cost of 300-500€ will provide you with a more controlled property purchasing experience. They will know the local area, the true value of property, local issues etc. Plus speak the language. If in Spain try using Martin and Amanda at http://www.spain4u.es/
Take your time, it is a buyers market in most of Europe. Visit the dream several times. Look at it and play devils advocate.
