Many holidaymakers returning from their fortnight away dream of buying a home abroad. Indeed, more than 600,000 Brits now own overseas properties, and it's never been easier to buy that idyllic place in the sun. However, you still need to tread carefully through a minefield of financing, local taxes and legal issues. James Coney looks at how to get that dream home.
WHERE TO GO
MOST people looking to buy a holiday or retirement home overseas will normally choose a favourite holiday destination as their location. Brits have had a love affair with the Spanish Costas since the 1960s so it is no surprise that buying a property in Spain is relatively easy.
In the past year alone, some 75,000 Britons bought a house in Spain, for an average price of about £160,000. France was the second most popular destination, followed by the US and Portugal.
The problem for some new buyers is that many parts of the Spanish coastline are so over-run by Brits that you could be forgiven for thinking that you weren't abroad at all. This has pushed up prices - but it also means that newly-built apartments are in plentiful supply.
Cheaper holidays to more far-flung destinations and the expansion of the European Union means that Britons are falling for places further afield. If you want an overseas property as an investment, then traditional locations such as Spain and France may not be the best places to buy because property prices have been rising for some time.
Buying in up-and-coming economies such as Bulgaria can pose other problems because they lack infrastructure. For a holiday or retirement home, towns near popular holiday spots are likely to be the best option. There will be good communications and a local community used to foreigners - and it will be easier to rent it out to other holidaymakers to recoup some of your costs. But as more Britons buy holiday homes, there is increased competition for rentals and fewer holidaymakers to go round.
Before you start hunting for real, decide on your location. You need to be clear about what you want - near a golf course or the beach - and where you want it.
WHAT TO BUY
THE top tip from overseas property experts is: never buy a property without visiting it. This is the biggest mistake made by many buyers.
Before you go house-hunting, decide on your budget and stick to it. The most popular choices for overseas buyers in recent years have been apartment complexes in Spain. Many of these are sold 'off-plan', which means that you buy them before they are built. If you do this, you will get a cheaper price than buying one already built. However, you do run the risk of the property being not what you expected.
The benefit is that most of these developers will be able to point you in the direction of financing and make sure you don't run into legal problems.
Just like buying in the UK, trying to find the perfect property on your own can be a time-consuming business. Many estate agents in France and Spain speak English and will be able to point you in the right direction, but you need to focus your search and spend time visiting the houses. Crucially, treat buying a house overseas exactly as you would buying a house in the UK.
If you do not check out the deeds and the planning permission properly, you could end up having your dream home turn into a nightmare. It is estimated that fees and taxes for buying in Spain will add around an extra 11% on top of the price of your property .
In France, the tax varies depending on whether it's an old property or new build. Allow 8% to 10% for old homes, and up to 25% for a new one. Property taxes and fees in Portugal add up to 10%. A home in Florida attracts up to 3% in taxes and fees, plus annual local taxes.
Another key to success is good legal advice. Buying overseas rarely gives you the same rights as you have in the UK, so it's crucial to get advice from legal representatives who are experienced with property in the country you are planning to buy in.
If you are buying from another owner rather than a company, you should check if the property has a mortgage attached to it already and that any planning permissions are in place.
If the property is being built by a developer, ensure that there is a suitable reservation contract you can sign. If you are buying an apartment that is part of a complex, you may have to sign a contract to ensure the upkeep of communal swimming pools, lifts, parking areas and shared gardens.
Fees for different apartment complexes can vary greatly, so it is important to make sure that you know precisely what you will be expected to pay. Never sign a foreign language contract, and do not trust a translation given to you by a foreign developer or seller. Get the original language paperwork and English translations checked out at the same time.
Always get an independent survey. Overseas property specialists, such as Conti Financial Services, have experts who will arrange mortgages and legal advice for most countries.
GETTING THE MONEY
IF YOU are not buying your property outright then you will need a mortgage. These come in two forms: sterling loans where interest rates are based on UK levels and repayments are in pounds; and foreign currency loans where rates are set in the country concerned and repayments are made in the local currency. With overseas mortgages, you will generally need around 25% to 30% of the property price as a deposit. Many apartment complexes in Spain demand 40% up front.
Foreign currency mortgages can look good value because rates in countries such as Spain, France and Portugal start at around 2.75%.
However, you will have to take into account exchange rate changes that will make your monthly repayments cheaper or more expensive depending on how strong the pound is compared with the euro.
Barclays, NatWest, Abbey, Halifax, Leeds & Holbeck BS and Norwich & Peterborough BS offer mortgages for properties in Spain and some of them for France.
Rates on sterling mortgages will be higher. Norwich & Peterborough has a two-year fixed-rate of 3.84%, and a five-year fixed-rate of 5.19% in its Spanish mortgage range. This is equivalent to monthly repayments of £598 a month on the two-year fix, and £671 monthly on the five-year fix for a £100,000 mortgage repaid over the maximum 20 years.
Leeds & Holbeck has a three-year tracker mortgage that follows the Bank of England base rate (currently 4.5%) plus 0.9% and a twoyear fixed-rate of 5.59%. Initial monthly repayments on a £100,000 mortgage over 25 years would be £615 for the three-year tracker and £627 for the two-year fix.
Overseas property specialists will arrange mortgages for other countries. Rates for these will vary, depending on the size of your deposit.
Barclays France has a 10-year euro fixed-rate of 3.45% or 3.9% for 20 years. This would give monthly repayments of £574 a month on a £100,000 mortgage repaid over 20 years. It has variable and capped rate mortgages starting at 2.5% and 2.95%.
As well as differences in fluctuations in exchange rates, you will also need to take into account fees for moving money overseas. Spanish banks will charge a lifting fee for receiving money from the UK, normally around £30 to £50 for every £10,000 transferred.
UK banks will charge you a set amount per transaction if you are moving sterling to a different bank. Halifax and Barclays will not charge you for transferring money to their foreign branches.
If you are paying for your overseas property outright, you will also need to transfer the money into the foreign currency. Shop around, because rates and fees can vary drastically. And remember that even the tiniest move in the exchange rate can affect the price of your property.
A common way of paying for the house outright is to remortgage your main UK home. As a general guideline, most UK lenders will allow you to remortgage half of the value of your property to pay for an overseas house. So if you have a house worth £200,000, they will allow you to take £100,000 for an overseas property.
Currency specialists such as MoneyCorp will allow you to fix an exchange rate on a certain date so that you can budget more effectively. They can also set up monthly transactions at a set rate.
