Many people dream of buying a property abroad for holidays or retirement, but mistakes can be costly.
Buying a property abroad can be fraught with expensive pitfalls, yet for such a big decision it’s one that is often taken lightly. Many would-be buyers fail to do their research, even when they plan to sink their life savings into the purchase. “People who come to me are typically buying a holiday home, investing for retirement, or buying a property to live in,” says overseas mortgage broker Simon Conn. “But they make mistakes because they rush into things. They are buying these properties as their dream home or retirement home without doing any research – it’s incredible.”
Before committing to a purchase, explore the local area, check out the amenities and work out how you would integrate into the local community before committing to a property purchase. Never buy without viewing: one cautionary tale saw a buyer snap up a property in the Swiss Alps that was billed as good for skiing, only to find it was located 40 miles from the slopes.
If buying a property off-plan or on a site that is still under construction, it’s important to check out the reputation of the developer. Visit other properties they have built to see how they look and how they have survived heat or other weather conditions. You should also make sure that the facilities the developer is planning really will be built. What happens if they run out of money? “If a development is being built and it promises amenities like a pool, shops, or a golf course, make sure it is in your contract that if they are not built, you get recompense,” says Conn.
A lot can go wrong when people fail to do their due diligence, agrees Christopher Lean, a chartered financial planner at Aisa International based in the Czech Republic, who has bought overseas property himself and has previously run a mortgage company in Prague for Britons buying property in the city. He points to a couple of serious examples of where things have unexpectedly gone wrong for buyers, such as buying a property but not the land it is on, later to find access is blocked; or buying an atelier apartment and then discovering you can’t have it as a permanent residence.
Hire trustworthy local experts
As well as a specialist mortgage broker who knows the market well, you’ll need to hire other professionals too. “Get an independent lawyer, even if you’re buying a repossession from a bank,” says Conn. “You can end up with properties with no habitation licence so you can’t get water and gas. Get a survey done, even on a new-build property. Make sure you understand the contract you sign, get it properly translated.” In some countries you will also need a notary, who is both a qualified lawyer and a public officer, and will make sure your property purchase is made legally and registered correctly.
Factor the costs of legal expertise, utilities and taxes into your planning, adds Lean. “Hire your own lawyer who speaks fluent English – don’t use the lawyer recommended by the seller. Get to know the area before buying. Find out what extras will appear, such as electricity, water, and gas connections. Often there are significant legal or notary fees, so you need to quantify all of this before committing to purchase,” he says.
Those looking to buy in France, Italy, or Portugal should set aside 10%-12% of the purchase price of the property to cover government taxes and legal fees, says Conn. In Spain it would be closer to 12%-16% and in the US 10%. “Regional districts may be cheaper, but a lawyer can advise.”
Many of the pitfalls are country specific, but language barriers can cause universal problems – even with minor tasks. Trying to connect your new property to utilities when you don’t speak the local language is difficult, so ideally you would start learning it before you relocate.
Be ready for the Brexit effect
Things might be harder for British retirees wanting to live and buy property abroad after Brexit, but how the rules could change is still uncertain. “If retiring, check out what the rules are for long-term residency,” says Lean. There may also be changes to the pension options available to Britons retiring abroad – the Treasury has said it doesn’t know whether transfers to a Qualifying Recognised Overseas Pension Scheme will be tax-exempt after Brexit. You may also find the fluctuating exchange rate could affect your property purchasing power.
The top property hotspots
Spain is still the most popular destination for Britons wanting to retire somewhere warm – around 310,000 UK-born people lived there in 2017. If you’re considering it, bear in mind Spain’s conveyancing process is different from the UK’s, so you’re likely to need a local specialist to help you navigate the system. Buying off-plan is a high-risk strategy, as many found out when the Spanish property bubble burst in 2008, leaving ghost towns of unfinished developments. Also be careful with coastal properties and those on rural land, as they may not have full planning permission for residential use.
Other favoured destinations for British retirees are France, Portugal, Italy and the US. But Conn also highlights Greece, Cyprus, Turkey and Ireland as attractive markets for those wanting to buy abroad. Long-haul destinations that attract a lot of UK expatriates are New Zealand, Thailand, South Africa, Canada and the Caribbean. Australia is also becoming increasingly popular, but property in the cities is expensive, and foreigners may face some restrictions on property purchases.
Eastern Europe used to be a popular destination, with Bulgaria, for example, offering some of the cheapest property in Europe and a low cost of living. But it is very difficult to get a mortgage for these destinations now, says Conn. “A lot of banks aren’t lending, they lost money on illegal properties. You have to ask ‘why is property cheap?’ It’s not just the location, it is also the quality.”