Buying property and getting a mortgage for expats
If you are thinking about buying a home or other property outside the UK, the steps you should follow may be very different from those you would follow at home.
Every country has a set of legal rules to follow, and they will vary from those in Britain. With that in mind, here are some practical tips for buying property overseas.
Where and why?
Your property choice depends on the answers to both these questions.
Where is about location – near the sea, near work, near an airport for easy travel between home in the UK and your holiday destination.
Why could mean considering where family and friends live, moving for work or a great place to retire with a warmer climate and cheaper cost of living.
Ultimately where, why and budget restraints whittle down any property wish list to a few choices or compromises.
Different factors apply to a favourite destination for you and one that must make money from vacationing visitors.
For the latter, put your personal preferences aside and take a hard-nosed business view as holidaymakers will have different requirements from someone making a new home abroad.
Always take local, independent legal advice
Many expats have lost money or had problems with the title to their dream property because they failed to take independent legal advice.
Instead, they relied on what they were told by a lawyer connected to the bank, developer or sales agent who often acted for seller as well as the buyer and struggled to represent the conflict of interest this raised for both sides pf the deal.
Always instruct an independent lawyer who has no link with the seller or any third party involved in the sale. They should speak English and the local language, plus have professional qualifications to handle transfers of ownership in the country where the property is located.
A lawyer will charge between 1% and 2% of the purchase price.
Seek independent translators
Developers and agents will recommend lawyers and translators they know to try and push the sale through quicker and to keep control of the process.
Instruct your own interpreter and ensure they have experience in translating legal documents from the local language into English.
Never sign a document in a foreign language without having read a complete translation first.
Check your right to buy
Many countries outside Europe have rules restricting property ownership to their nationals or local by-laws stopping expats from buying second homes or setting up holiday lets without a licence.
The first conversation with a lawyer should always centre around the legal right to buy for expats and any limits on ownership or use.
In many countries, state or provincial laws apply that can vary, so rather than check the national rules, make sure the advice is specific to the place where the property is located.
A few countries offer ‘golden visas’ to wealthy families.
For example, in Europe, Portugal and Malta fast-track residency visas for rich expats and their families who are willing to invest significant amounts of money in a local business.
Beware of agents
Many overseas property agents run reputable and trustworthy businesses, but unfortunately a few rogues tarnish their image.
Remember an agent’s job is to sell a property at the best price for the client, who is the developer or seller, not the buyer.
In return, they are paid a commission, and that can influence what they say about the property they are selling.
British estate agents charge a fee of around 2.5% of the property value, but this is a lot more in some countries.
Typical agent commission in Spain is 5% of the selling price and in Italy, this can rise to as much as 10%.
One tip is buy from a developer rather than the agent. The agent’s price is likely to include a mark-up to cover commission and expats could negotiate a discount from the developer if they buy direct.
Should you go on an inspection trip?
Inspection trips are not self-arranged viewings. Although not so many agents and developers offer the trips now as before the downturn, they are still a popular sales gimmick in some parts of the world.
An inspection trip is a mostly expenses paid visit to a resort or region to view homes.
Expect a hard sell from the developer to try and get a signature on a contract and some form of deposit.
Find out if a cooling off period applies that gives you a chance to reflect on what you have seen and if you want to proceed with a purchase. If not, do not commit before returning home and taking professional advice.
View as a local not a tourist
Spending a vacation in a holiday resort is very different from living there all the time.
As a tourist, you are in a bubble and hardly see what the everyday facilities are like, such as shops, doctors, hospitals, public transport and entertainment. Visiting a holiday resort off-season when the tourist stops are closed is often an eye-opener for prospective expats.
Consider how easy a property might be to sell if you decide to move home. That second home might be great if you are retired and want to get away from it all, but might not appeal to a local looking for a home in a prime location.
Unless a holiday resort home is in a desirable location, they can take longer to sell than a typical property as the locals probably live out of town in a cheaper area, narrowing the number of target buyers.
Think about the facilities you need – from simple things like a supermarket and parking to healthcare and the drive to an airport to get a flight home.
Arranging a mortgage
Foreign banks are likely to pay developers and agents commission for referring customers and this could make a mortgage more expensive or restrict choice to a limited range of products rather than cheaper deals offered by competitors.
Compare mortgages from several lenders, paying attention to the interest rate, repayment term, fees and charges for early repayment.
Don’t forget to consider how a fluctuating Sterling exchange rate will impact on the payments.
Many expats fund overseas property purchases by remortgaging their UK property, where they can raise the money easier as they have a credit history.
Refinancing property in the UK to raise funds for an overseas purchase also helps increase the amount an expat can borrow.
Overseas banks are likely to advance a loan of 50% or 60% of the value of the property, leaving the buyer to find the rest in cash as a deposit.
A home remortgage in the UK releases up to 95% of the value of the property, allowing a cash purchase or a much smaller overseas loan.
Try using our handy mortgage calculator.
Ask for a list of costs
Extra costs can bump up the cost of buying a property and can amount to a hefty slice of the purchase price.
Don’t leave these to chance – ask your lawyer to draft a list of the likely worst case scenario so you can see the true cost of buying that dream home overseas.
Here’s a list of typical additional costs when buying property abroad, but the list is not exhaustive and some extras may be added in some countries.
- Fees for tax advice in the UK and overseas. If you pay tax in Britain, you may have to pay capital gains tax in the UK when you sell overseas and tax in the country where the property is located
- Survey fees
- Mortgage arrangement fees to the lender and a mortgage broker
- Foreign currency exchange costs – explore the costs of a specialist money transfer service rather than using a bank to make a saving
- Legal fees for the transfer of title
- Any local purchase taxes, like Stamp Duty in the UK
- Costs of shipping furniture and personal possessions
- Translation fees
- Connection fees for utilities, such as water, power and sewage
- Charges for making a will in each country where property is owned as well as the UK
The buying costs can easily come to 10% or more of the property purchase price in many countries.
Buyers will need these fees in cash as they are paid between the offer acceptance and taking the keys.
On top of the buying costs are the property running costs and standing charges:
Local property taxes, like council tax or business rates in the UK
- Tax on any rental profits
- Utility charges
- Property insurance
- Licences may apply if the property is let
- Ongoing repairs and maintenance
Don’t forget to add the cost of any mortgage, even if the loan is on a UK property, plus the expense of travelling to and from the UK.
If the property is destined as a holiday let, factor in working capital on top of buying and running costs.
Put aside some cash as working capital for furnishings, the running costs and paying the mortgage before the bookings start.
A contingency fund to cover voids in the close season and cancellations is also a good idea.
Buying off-plan is risky
Buying off-plan means purchasing property that is under construction or where building has not yet started.
The risk comes from the developer asking for upfront payments that could be lost if the property is not completed or the builder goes bust.
Following these rules should reduce the danger of losing money.
- Always discuss making payments to a developer with an independent lawyer before handing over any cash
- Do not make payments without a bank guarantee for full return of the money
- Any sales contract should agree the refund of any payment plus interest to the buyer if construction does not start or the property is not habitable within an agreed timeframe
- Ask the bank offering the guarantee to detail the terms in writing in English
- Keep records of stage payments and other costs
- Keep a diary of meetings, agreements, invoices and date-stamped photographs of the build in case you should take the developer to court
The developer might not like these terms, but an experienced firm will comply as they will understand they are standard conditions. If the developer refuses the terms, consider walking away from the deal.
Always check what a developer says about their trading history and how they will proceed with the development.
Useful indicators include have the builders completed and sold previous developments according to contract and what do their accounts say about their financial status and ability to deliver on time?
Financial advisers often recommend investing in offshore property, such as hotel and resort developments, or property funds with a promise of better than average returns.
Always run these deals past another independent adviser before handing over any money.
Too often, a promise that is too good to be true is just that.
For someone spending just a few weeks a year at a second home overseas, fractional ownership can cut the cost of ownership.
Fractional ownership gives someone the right to use a property for a set number of weeks a year. In return for access, they pay a proportion of the costs of keeping the home matched to their exclusive usage.
The idea seems ideal. You get a luxury lifestyle at much less than full ownership of the property would cost.
Before entering a fractional ownership contract, always ask what you get for your money, how your weeks are allotted and how much control do you have of the way the property is managed.
Financing fractional ownership will probably mean paying in cash from savings or remortgaging a home in the UK.
Think about your exit strategy as a 10% share of a property is difficult to sell.
Indemnity insurance and qualifications
Always ask to see certificates and check the dates and reference numbers.
Some unscrupulous property sellers, lawyers and agents forge the documents or pay the first instalment of indemnity insurance so a certificate is issued and then stop the payments.
Go to the issuing body’s website or give them a call to find out if the certificates are valid.
What if the deal goes wrong?
Some property purchases fall through even if an expat takes every precaution to safeguard their money.
Whether fraud or bad luck are the culprits, property buyers and owners are on their own if disaster strikes.
If you have followed the advice in this guide, your lawyer and financial advisers should be regulated and their supervisory body may offer some help.
If not, you should consult an independent lawyer with a view to taking the matter to court.
Personal finances and tax
Most people believe moving to a foreign country automatically makes them tax-resident in their new home.
This is not correct. Tax rules do not mention ‘expats’ but talk about ‘tax residence’.
Changing tax residence means meeting a complicated set of rules in the UK and in another country.
Many expats stop paying taxes on their income and gains in the UK only to find they remain resident and owe money to HM Revenue and Customs (HMRC) because they still have strong personal and financial ties to Britain.
These ties include keeping a home in the UK, having bank accounts and making regular visits to the country.
The starting place for investigating tax status is the statutory residence test.
Anyone planning to live overseas should finalise their tax affairs with HMRC before they go by filing a Form P85
Landlords living overseas and renting out property in the UK also must follow some special rules for paying tax on rents and capital gains tax on disposal of a home.
When working out a budget, expats should check if the state pension is index-linked for their new home. If not, the payment is frozen at the amount first paid.
Find a list of countries where the annual cost of living increase is applied here
Find out more about buying property overseas
Some British embassies publish local guides to buying property that are available online. Click the link for more details:
The Association of International Property Professionals (AIPP) is a trade body that aims to promote good practice in the overseas property industry.
The AIPP has no regulatory power but does enforce a code of conduct among members.
The body publishes a few property buying guides that are free to download.
Another information source is the Overseas Guide Company
The Global Property Guide highlights home prices, rents, tax and legal matters in dozens of different countries.
For the latest travel advice, go to the Foreign and Commonwealth Office’s Travel Aware page for country-specific information.
Do take care when sourcing tax, financial and legal information online. A lot of web sites are not regularly updated or may cover details that are not relevant to expats, so check publication dates and take professional advice before agreeing to hand over money to anyone.