Top 10 Tips for Buying Property Abroad

Buying overseas property can be a dream-come-true, but if you don’t take some basic precautions, it can quickly become a nightmare. To avoid the most common pitfalls, chat to one of our Finance Consultants who is also experienced in buying property in their country of expertise including certain legal and tax aspects of which you should be aware. Please read on for some general tips.

1. READ ALL CONTRACTS!

ALWAYS read your preliminary purchase contract before you sign it. In most countries you will be asked to sign a contract once you have chosen your preferred property, which is your agreement and confirmation that you intend to buy the property (and you will also normally be required to pay a deposit at this point). It is true that until you carry out these formalities the property could be sold to somebody else as, until this contract is signed and the deposit paid, the property will not be officially taken off the market.

Despite this, you must allow yourself time to read this agreement and do not sign it in a hurry succumbing to the sales pitch that you will lose the property if you do not. The sales line may be completely right; you may lose the property if you don’t sign the contract straightaway. Surely if you do not sign one of these contracts straightaway because you need to take time to read it, have it translated and checked out by your professional advisers, then it was probably not meant to be.

ALWAYS read all other contractual agreements, such as your mortgage offer. If you do not understand a document you are asked to sign and accept (whether it’s written in a foreign language or not), you should always get advice from a qualified professional. In cases where a translation is given, the English version usually has no legal value, so you should always have it confirmed by a trustworthy source that it is true to the original.

2. Study all of your finance options

Advice from a specialist overseas property financial adviser should be sought prior to finding your dream property in order to establish which method of finance is the best given your particular circumstances. For example, even if you have the cash available to purchase the property outright, there are tax and financial planning advantages in securing a mortgage in the country of purchase and therefore a foreign currency mortgage might turn out to be the best solution. For others, remortgaging an existing property, whether in the UK or overseas, in order to raise the required funds is preferable to the options available in the country of purchase. And others, subject to status, will have the option of securing a multi-currency mortgage on the foreign property.

3. Secure the ‘best’ mortgage

It is very important to deal with mortgage advisers who have experience in financing property transactions in your particular country of purchase. Generalist advisers, who may have assisted you with past UK property purchases, will not be able to provide you with the detailed knowledge of the mortgage market, procedures and legalities in the foreign country of purchase. As overseas mortgages are not regulated by the financial watchdog in your country of origin, it is vital that you use a mortgage provider or broker that you can trust.

When deciding on which broker to use, consider the following points:

• When I ask them a question, do they respond confidently and efficiently?
• Do I feel that I am speaking to a call centre operative or a financial services professional who is interested in what I have to say?
• Could I visit them in person? Do they work in professionally run offices?
• Does their business proposition sound too good to be true?

It is vital that you assess, by discussing your situation with your mortgage broker, whether or not the mortgage you want would be available to you, prior to selecting your dream property. Whilst you may have easily secured several mortgages for property purchases back home, it could be a different story for an overseas purchase. Every borrower’s needs are different. The ‘BEST’ mortgage deal will vary depending on your particular priorities - do you prefer a low rate or a flexible product? Do you prefer a large mortgage amount or low monthly payments? It is important to establish what your priorities are to ensure that the best deal is secured. Equally as important is that you understand the exact terms and conditions of the deal that is offered to you by the chosen lender. Your specialist overseas property mortgage adviser should assist you with this.

4. Know your legal duties and rights

You cannot assume that the same legal formalities are used when purchasing property overseas - each country has its own legal system that must be adhered to when purchasing property in their country. You will find that some countries will have a highly regulated, protective legal system that will ensure you peace of mind when purchasing property there. Other countries are less developed in terms of legal protection for property purchasers.
It is therefore absolutely essential to seek professional legal advice from advisers who have experience in your country of purchase, so that you understand entirely what is expected of you and, equally, what protections the local law provides. Your overseas mortgage adviser should be able to put you in touch with the right legal professionals for this. These professionals will ensure that the required permissions, licences and planning consents are obtained for example.

Depending on the country in which you are buying, there can often be a myriad of legally binding deadlines associated with buying a foreign property. Failure to meet these can, and often does, result in losing deposits and the purchase falling through. Make sure that you have a support network consisting of your estate agent, mortgage broker and legal adviser helping you to a) be aware of these time frames and b) keep to these time frames.

5. Consider any tax implications prior to purchase

It is essential that you understand the tax system in your country of purchase so that you can operate in a tax-efficient manner. A few things to consider are:

• Are there any tax advantages to securing a mortgage in the foreign country?
• Will I have to pay tax on my rental income even if I am never in that country?
• What are the inheritance tax laws?
• How can I limit my exposure?
• What are the local taxes? When are these payable?
• What capital gains taxes will I be subject to if I later sell this property?
• Does my country of residency have a tax treaty with my country of purchase to ensure that I am not taxed twice on my income?

6. Get certainty on the ownership/title of your property

Possession is nine tenths of the law, so make sure that you are aware of EXACTLY what you are purchasing. A few points that often arise are:

• Ownership of communal areas - is your garden yours or do you have to share it?
• Debt remaining on the property - sometimes, if buying off-plan, the developer borrows money to build the development which is allocated against each plot as additional security to the developer’s bank.
• Is your property freehold or leasehold?
• Does any land surrounding your property belong to you?

7. Arranging your finances for the future

When buying abroad, it is important to set up a Currency Exchange Account so that you can transfer money to your country of purchase (where the currency is different) without paying fees and getting the best rate of exchange.
This 'Account' is in the UK. Rather than send monies abroad, you simply transfer the funds into this UK account and the Currency Exchange Company then transfers the money to the foreign country for you, charging no commission, no fees and securing a better rate of exchange than your UK bank. They can do this as they are currency 'brokers' - they buy and sell money, like stockbrokers buy and sell shares, to ensure that they get the best rates.

This 'Account' will prove invaluable for the future when paying deposits on properties, settling foreign solicitor fees, paying a foreign mortgage and moving money abroad ready for holidays to this foreign country.
With this you will also need a current account in your country of purchase. This account will then run the mortgage (if a foreign mortgage has been taken) and will enable you to pay bills in the foreign country easily. In addition, most accounts come with a debit card so holders can withdraw money in their country of purchase when they are there on holiday. In addition, those buying in the Eurozone will normally find that they can travel anywhere within the Eurozone area and use their card with no charges. So an owner of French property, who has a current account in France and who uses their Currency Exchange Company to transfer funds to this account, can then go to Spain on holiday and use this card in shops, restaurants and to withdraw cash without paying any commission or fees at any point! This saving can add up significantly! In many overseas countries, to fall into an overdraft situation on an account, for a cheque to bounce or for bills to be left unpaid, will have serious ramifications.

This may seem obvious, but overseas banks do not often issue overdrafts and sometimes, even being overdrawn for as little as 30 days gets you a black mark at the central bank! Equally, unpaid bills or mortgages can have the same serious long term effects. It is important to be aware of this and to ensure that a regular direct debit is set up with your Currency Exchange Company so that your foreign account is topped up regularly without you needing to think about it. For more details on the Assetz Currency Exchange Service please click here.

8. Make sure you have budgeted for all those extras

Therefore, when making your international transfers, make sure that you transfer sufficient funds to cover these additional costs, and not only the mortgage payments.

9. Consider the investment potential of your purchase

Unless you have set your heart on a particular region in a particular country for your purchase as it is your dream to buy a holiday home there, irrespective of cost or potential return, then this point can be disregarded! However, most of us have narrowed our next purchase to a particular country and next need to find the right area. Visiting the area is the best way to get a feel for its potential. By looking around the area you can see what sort of people are attracted there and what amenities are available. Further research will show if there is an airport nearby and what calibre of airlines use it. These are the kind of factors that affect the appreciation of property and therefore the potential gain that you could make from the purchase that you may wish to consider.

10. Have fun!

Regardless of why you are buying abroad, there is no reason why you shouldn’t enjoy yourself. Whilst there will doubtless be challenges - no new project can come without - you are also embarking on an incredible adventure with an incredible prize at the end. Using the right advisers and carrying out adequate research (such as reading articles like this) will ensure that the purchase goes smoothly. Owning property in another country is a luxury and, as such, you should love every second!