There's some corner of a foreign minefield that is forever England

Over a million of us have turned dream into reality by buying a place in the sun. But dreams can turn sour. Simon Hildrey sees how to avoid legal and financial heartache
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The Independent Online

More and more of us aren't just dreaming of a summer holiday but going the extra mile and buying a house in the sun. The exchange bureau Travelex says 1.25 million Brits own property abroad.

More and more of us aren't just dreaming of a summer holiday but going the extra mile and buying a house in the sun. The exchange bureau Travelex says 1.25 million Brits own property abroad.

But dreams can quickly turn into nightmares. Some people have signed the wrong contract and ended up with a different house from the one they thought they'd bought, while others have discovered that property developers didn't actually own the land in the first place.

Nicky Litchfield, 39, an administrator from Nottingham, owns properties in Spain and Cyprus. However, she found the buying process was much smoother in Cyprus.

"We were taken to Spain for two nights by a property company. It cost £80 for flights, accommodation and to be shown various properties. The company was fine until we agreed to buy the apartment. Despite promising to help us through the whole process, we were left to handle the rest ourselves."

This included meeting a solicitor to register as the owner. Even though Ms Litchfield had made an appointment, she had to queue behind 30 people for three hours before she was seen.

"The other problem was that we had to give the solicitor £4,000 upfront to cover costs. We were due a rebate of £1,500 but we had to wait until we could go and physically collect the money ourselves."

In Cyprus, it was much easier. "I saw five or six developers and bought an apartment from one, who took me to a solicitor to register the property. The documents were in English, whereas we were sent documents about the first property in Spanish."

Adrian Shandley, managing director of Premier Wealth Management, reminds buyers to ensure they aren't paying more than they should be. In France, for example, the seller usually pays the estate agent's fees, which can be as much as 10 per cent of the property value. But there have been instances where these have been added on to the purchase price, so check that this isn't the case.

He adds: "Set up direct debits from local banks to pay bills and taxes. If you wait until the bill arrives in the UK, you may find the payment date has passed and the utility has been switched off."

While some UK banks offer mortgages on foreign properties, they usually divert you to one of their local lenders, which may only offer you up to 75 per cent loan to value.

Mike Boles, director of mortgage broker Savills Private Finance, says: "If you go to the likes of Abbey or Halifax, they refer you to local branches. An increasing number of buyers are also using euro mortgages rather than borrowing against their home in the UK as interest rates in the eurozone are only 2 per cent against 4.75 per cent in the UK and the differential is likely to get wider.

"Further, if you rent out the property, it is easier to offset mortgage costs against tax on this income if you borrow locally."

By taking out a mortgage in euros, however, you are subject to currency risk if your income is in sterling. Furthermore, Travelex warns that foreign exchange fluctuations could add as much as £10,000 to the purchase price between the time the price is agreed and contracts are completed.

To protect yourself, fix the exchange rate now for a completion date any time in the future. Alternatively, use a spot transaction to transfer funds immediately to the agent in line with the exchange rate at that time.

Kevin Fleury, regional manager of Conti Financial Services, which specialises in overseas mortgages, reminds buyers to ensure they check legal ownership.

"You have to make sure you are being given the title deeds on the land as well as the property," he says. "In some cases, the developer has kept hold of the land deeds and gone bust. The bank has then asked all the owners of property on the land to pay the money owed by the developer." He warns against buying property in Northern Cyprus because of uncertainty over legal ownership.

Michael Profit, head of private clients at law firm Blake Lapthorn Linnell, says you also need to plan for death. Some countries, such as France and Spain, have forced heirship rules. These determine who inherits the property after you die, and may override the chosen dependants in your UK will.

Mr Profit says you should set up a second will in the country of your new property, which specifically excludes UK assets. You may also need to amend your UK will to exclude your foreign property.

James Hender, senior tax manager of accountants Smith & Williamson, says inheritance tax (IHT) will be liable in the UK and maybe in the foreign country on death. Double taxation treaties mean IHT will not have to be paid twice, but you need to establish which country has priority.

When you sell up, you will be liable for capital gains tax both in the UK and, possibly, the local country. If you rent out the property, you will also be liable for income tax in the UK and locally. So use any double taxation treaties to avoid paying twice.


* Never sign a contract you don't understand. Have it translated independently first.

* Check that you have the title deeds for both the land and the property.

* Seek advice from independent solicitors, architects and surveyors. Do not automatically use the lawyer that a property developer recommends. Some UK law firms have connections with solicitors or notaries in other countries.

* Carry out an independent valuation, which should identify such problems as damp and subsidence.

* Ensure you do not inherit a debt on the property, especially if the developer has borrowed against it. Check the financial strength of the developer if the property has not been completed.

* Seek a cooling-off period after you have agreed to buy the property.

* Make sure you are aware of all the costs and taxes.

* Set up direct debits at a local bank to pay bills.

* Make a will.


Spain (24% of Britons who buy property abroad)

France (22%)

Portugal (9%)

Cyprus (8%)

Italy (6%)

Source: Travelex