With rising house prices in the UK and travel well and truly back on this summer, new data has revealed that there has been a recent spike in people searching for 'buying a property abroad'.
For those who have always dreamed of living abroad, the temptation to relocate and fulfil their lifelong ambition of having a home in the sun has therefore never been greater. However, there are a number of factors Brits must consider before purchasing property overseas.
Jonathan Merry, CEO at MoneyTransfers.com, has outlined eight key steps people should take before purchasing their dream property abroad.
1: Set a realistic budget
As you would do if you were buying in Britain, the first step to purchasing a property overseas is establishing what your budget is and recognising what you can afford. If you are planning to finance the purchase through a mortgage, ensure you first get prequalified. Doing this will provide you with the limits of what you should consider in the price of your desired new home.
There are also lots of additional fees which can steadily mount up so it’s important you’re prepared for these too. Additional costs to consider include; international bank transfer fees, legal fees, connection fees for water, sewage and electricity as well as any stamp duty and annual property tax.
2: Decide what you’ll use the property for
Once you’ve set your budget you need to think about what you’ll be using your property for. Buying a home abroad doesn’t necessarily mean you have to permanently relocate overseas and holiday homes are a firm favourite amongst Brits.
It’s also worth considering who the property is for. If you’re expecting visits from friends and family throughout the year then you’ll need to bear this in mind when deciding on the number of bedrooms and bathrooms you want your property to have.
Although choosing the right location is important no matter what you’ll be using your property for if you’re permanently relocating you may need to consider additional factors such as job prospects, local schools and sports clubs.
3: Think carefully about the location
Another fundamental aspect of buying a home is deciding on the right location. While you may think you already know the ideal destination for your home abroad, there are a number of factors to consider to ensure it really is the perfect place for you.
Homes by the beach are particularly attractive options but it’s important to remember seaside resorts can be very quiet in the winter months. If you’re buying a holiday home which you’ll rent out it is worth looking at locations which are busy all year round.
It is also important to consider what amenities you’d like nearby such as local shops, restaurants and bars. You should also double-check if these complexes are open throughout the year or if they only operate during the tourist season. For this reason, it is always advisable to visit your chosen destination out of season to get a feel for what it is like during quieter times.
4: Hire a lawyer who specialises in the local law
We’ve all heard and seen horror stories involving Brits who have bought a property abroad only for things to take a nasty turn. Thankfully these situations aren’t particularly common but nevertheless, it is vital you take all of the precautions necessary to protect yourself and your purchase. Hiring a lawyer to help you complete all of the paperwork and legal processes needed to buy a home is therefore a must.
You should ensure your lawyer is operating independently of your estate agent or the developer showing you your properties to make sure they are working in your best interests. They must also understand property law in the country where you’re buying.
You can find English-speaking lawyers and translators by contacting the local British Consulate.
5: Getting a mortgage for an overseas property & considering the deposits
Unfortunately, mortgages for foreign properties are no longer easily attained through UK high street banks. There may be exceptions on a case-by-case basis if you are a member of a Private bank for example if the loan is over £1m.
The easiest way to get a mortgage for an overseas property is to arrange one with a lender. Specialist brokers will give tailored advice and information including estate agents and lawyers to use in your country which will definitely be useful.
Before looking to buy a property overseas make sure you research the minimum deposit needed for a foreign mortgage in that country as they can vary widely. The UK is currently 5% but in France, you would need 15%, 30% in Spain and as much as 50% in South Africa. It is also worth remembering that guarantees and protections will vary from country to country so these should be researched thoroughly also. This is because Foreign banks and mortgage brokers are not covered by the Financial Conduct Authority or the Financial Ombudsman.
6: Choose the right money transfer provider
This stage is most critical in any real estate transaction whether that be in the UK or abroad. Working out the best way to pay for your property abroad can cause real headaches and many people often fall victim to fluctuating exchange rates which lead to purchase prices spiralling.
If you have decided to finance the purchase through a 100% mortgage, you won’t need to think about how the money is sent to the seller. However, in the case of a partial mortgage or 100% cash payment, you’ll need to figure out how to send the money to the seller
When making an overseas property purchase it’s likely you will need to pay in the local currency. The most cost-effective way to pay for a property abroad is by using a money transfer provider as they offer far better exchange rates than high street banks.
Not all money transfer providers are the same and due to the involvement of large sums of money, you need to find a provider that not only offers attractive exchange rates but is also regulated and safe.
You should explore a couple of money transfer providers to find the most suitable one for you - you can use a Transfer Rate tool to help with this.
7: Research the countries’ entry requirements
Securing a visa is no longer always enough to confirm entry into a country as a result of the covid-19 pandemic. It is, therefore, more important than ever to double-check what policies individual countries have in place in relation to visitors.
Despite travel restrictions imposed as a result of the pandemic being largely lifted in most countries, Brits still cannot visit a handful of places including New Zealand. For those wanting to relocate here, it is best to wait until you can visit the country and properly explore what it has to offer.
In certain countries as well visa requirements determine how long you can stay in your new home each year or even how many times you can visit that country. Choosing a country with the most relaxed entry requirements is therefore the most suitable option for the majority of people.
8: Buying after Brexit
Due to Brexit, there are two main things to consider before purchasing a property abroad: tax and restrictions on stays.
If you are buying a property abroad to stay for long periods of time, you will need to consider the new rules such as the 90/180 Days-of-Stay rule. Under the Schengen Area rules of stay for non-EU citizens entering the territory, you can now only stay for a maximum of 90 days, for every 180 days. Those who intentionally or unintentionally overstay this period may face penalties such as deportation and entry bans.
In certain circumstances, some EU countries have different tax rates for non-EU citizens, so it is important that you research these to see if you will be affected. For example, if you have a holiday home in Spain you rent out whilst back in the UK, you must pay 24% rental income rather than the 19% that applies to EU citizens.