Ten top tips to find your new home in the sun
Don't let your dreams of living abroad turn into a nightmare. Do your homework, says Chiara Cavaglieri
Sunday 06 November 2011
A place in the sun is still a dream for many people, and others are willing to take an even bigger step by emigrating and leaving the UK behind. Official figures show that about 124,000 people emigrated last year, but buying property abroad can be a minefield.
Here are 10 things to consider before making that leap.
1 The location
Many of the big-name property portals have overseas sections, including Findaproperty, Primelocation and Rightmove, and you can find international property through UK estate agents such as Knight Frank and Savills. However, buying property abroad is about more than sticking with the area you like to visit during your summer holidays, so you need to look into the local facilities and transport.
"In the more popular areas of southern Europe where you've got a lot of choice, if you can afford it, pick somewhere near an airport," says Nigel Lewis from Primelocation. "It may be more expensive but is better for friends and family visiting and for renting it out. People don't want to spend their holiday stuck on the motorway."
Do your research: there are many horror stories of land-grab planning laws which caused many expats to lose their homes. Once you've picked an area, compare property prices over a period of time and find out if there are any new developments shooting up in that area. If there aren't enough buyers for them they could severely affect the price of your new home.
2 Getting an independent lawyer
Do not sign a contract before seeking legal advice and avoid using a firm recommended by an agent or developer. Get an independent lawyer who speaks English and understands local and international laws. They will ensure that nobody has a claim on the land your property sits in and that all the local planning rules have been adhered to. In some European countries you must use a notary to oversee the transaction, running searches and checking the title deeds, but you still need a lawyer to look after your interests. If you are buying off-plan, get legal help.
3 Choosing an agent/developer
Ask for references from previous buyers and find out long they have been in business for. Don't allow promises of guaranteed rental yields to push you into making a decision before you've ensured that you're dealing with a reputable company. Never hand over a cash deposit directly to the developer as there should be a third party (such as a bank) offering to guarantee the deposit.
4 Getting a mortgage
If you're not a cash buyer you can remortgage your UK home, although you do run the risk of losing it if you get into any trouble with repayments. Otherwise, you will probably need to arrange a mortgage agreement in principle from a local bank as only a few UK banks lend for overseas purchases. If you're borrowing abroad you will need to go through a specialist broker, but post-credit crunch it is much more difficult to borrow.
5 The exchange rate
Exchange rates will have a huge impact on the amount you pay between agreeing a price with the seller and paying the final sum. It may be worthwhile fixing the exchange rate by speaking to a foreign exchange specialist. Most currency brokers will allow you to fix the exchange rate for up to two years. Remember that if you rely on a UK pension in sterling, exchange rates could erode the value of that income so you may not enjoy the same standard of living.
6 Your tax liability
Don't ignore tax rules when buying abroad – it could take a significant chunk out of your budget. Property taxes, usually a percentage of the purchase price, vary widely from about 5 per cent in the US to 12 per cent in Spain and 15 per cent in Italy.
"On buying the property you may have to pay the equivalent of VAT (if it is a newly built property), stamp duty (if it is a resale property) or some other form of sales tax," says Paul Dimambro, the head of Hargreaves Lansdown Currency Service. "Local taxes, such as the country's equivalent of council tax, may be levied."
If you let the property you need to consider income tax, although if you choose a country with a double taxation treaty with the UK, you will be able to offset the tax paid against your British taxes. You may also need to pay capital gains tax when you eventually sell. Seek professional advice from a tax specialist.
7 Your pension
If you are retiring abroad or approaching retirement, you must find out how this affects your pension. You can have your state pension paid into an overseas bank account, but in some parts of the world (including Australia, New Zealand and Canada) your pension payments will be frozen, rather than increasing in line with inflation as it would here. You should take financial advice on whether to move any personal pensions with you or to leave them in the UK. Banking in many countries can also be expensive so keep this in mind when you're setting up an account.
8 Renting instead of buying
Don't think that buying is your only option. In many countries the local residents are more than happy to rent, so this may be the best route for you too. Even if you do want to buy and you're planning to move abroad permanently, you need to visit during different times of the year to get to grips with the local market.
"Estate agents don't like anyone saying this but it is a good idea to rent for at least a year before you move overseas. If you like the feel of the place and get to know what is going on locally, then buy," says Mr Lewis. Even if you're only looking for a holiday home, spend some time there to understand how the area works all year round in terms of services and weather.
9 The healthcare system
You need to investigate the health facilities available to foreign residents in your new country. Many countries operate a national health service. For example, in Australia there is Medicare, so you may be able to claim reciprocal care under our NHS. But if not, you will need either to pay for healthcare privately or take out a local healthcare plan.
10 An exit plan
According to a new study 107,000, Britons headed to Australia between 2005 and 2010, but 60 per cent of them decided to return home. To be safe, think about how long and how expensive it would be to sell up, checking fees, taxes and penalty clauses on your mortgage.
"That is why location is important. You want to buy in a good spot with great demand over a period of time so that you can guarantee a sale at a decent price. In difficult times the prime areas hold their value," says Christian de Meillac from Knight Frank.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
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