Four crucial tips for holiday-home buyers

With the Christmas holidays approaching, you may be getting ready for a break abroad. If so, there's a chance that you'll become one of the hundreds of thousands of Britons who enjoy their holiday so much that they decide to buy a second home overseas.

But if you're tempted to snap up a bargain between ski runs, make sure you understand the risks. Holiday homes can be a good buy, but they can also lead to large expenses and even the loss of your entire investment.

The first thing you should consider is the transaction costs. These include agents and legal fees, but also the taxes levied on property sales. In some cases, this can be substantial: Greece charges 23% VAT on new houses built after 2006.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Since these costs can't be recouped, it makes sense to set them against the amount of time the property will be used. This is something to consider if you will rarely be visiting the property, or you think you may lose interest in the region over time.

You also need to consider the ongoing taxes that you'll have to pay. Be aware that many countries have higher annual property tax rates than the UK, including much of the USA: California and Florida, both popular destinations for British tourists, have average effective rates of 0.74% and 0.94% of the property's value respectively.

In the past, holiday-home owners often paid lower property tax, because they used local services less. But cash-strapped governments are now targeting them as an easy source of revenue.

The devolved Welsh government has brought in legislation to let councils impose higher tax rates, while France is considering hiking the "weekend tax" charged on properties that are mostly left empty.

It's also vital to make sure that you have a clear title to the property and that there are no outstanding legal issues. This may seem basic, but European legal systems can be very different from ours. Spain is notorious for cases of "corner cutting" by lawyers, developers and estate agents, leading to disputes over planning permission and illegal construction.

Some holidaymakers have lost everything when local authorities demolished properties that were built illegally, even though they were constructed years ago and the new owners bought in good faith.

Lastly, whatever you do, avoid time-share schemes. These give you the right to use a holiday home, usually an apartment, for a certain amount of time each year. But you have to pay an annual fee whether you use it or not.

These fees are usually higher than the cost of a hotel room, making them poor value, and it is very difficult to resell time-shares, or even give them away.