'It's truly astonishing how many people enter into foreign property purchases with an abandon they'd never employ when buying a home in the UK,' says Jeremy Davies, author of the Which? Guide to Buying Property Abroad. 'Some people really go on holiday, see somewhere once, fall in love, put in an offer then find they've committed themselves to an overpriced ruin.'
So how can you make sure that buying a property abroad is one long holiday rather than one big headache?
Carry on abroad
As with most property purchases, finding your dream holiday or retirement home is the easy part, especially if you already have a destination or property in mind. You may already have spent many happy holidays in your chosen area, or perhaps already have timeshare. But for a true insight, nothing beats living somewhere full time for several months straight, both in and out of season.
Once you are sure that you are ready to buy, you will need to do even more detailed research and budgeting. Countries such as France have property for sale from about £20,000 but however much you spend, you will need to think carefully about how much work the property needs on it and whether you plan to live in it full time or rent it out for most or part of the year. Remember that the rules and requirements will vary from one country to another. On top of the purchase price, expect to pay valuation and legal costs together with local or regional taxes and fees. These can be up to a total of 20% of the property price in Italy or France, 10% in Spain and Portugal and 4-5% in Florida.
Parlez-vouz property?
Along with a different process, the familiar documentation and the professionals you rely on at home may not have foreign equivalents. Your bank or mortgage lender should be able to recommend reputable local solicitors and valuers who speak English. Property agents and other reputable experts can be found through the Federation of Overseas property Developers, Agents and Consultants (FOPDAC). Call 0870 350 1223 or find the full list of agents on the website: www.fopdac.com. Bear in mind that agents will be keen to help because they will earn commission (of between 5 and 15%). It is also worth noting that solicitors in some countries act for the buyer and the vendor so make sure you get independent advice. A British lawyer should check paperwork and make sure the deal is being handled properly before you sign anything - something which is crucial in foreign sales, where you may not pull out of an agreed offer without losing double your deposit.
Currency exchange
If you can, avoid a mortgage and buy outright in cash. If this is not possible then there are two options. The first is to extend the existing loan on your UK property. Your lender will probably require a hefty deposit. Remember that both homes will be at risk if you cannot keep up the repayments. The other option is to take out a second mortgage. Several high street names and specialist lenders offer overseas property services. These include Charcol, Halifax, Abbey, Barclays and Conti Financial Services, based in Sussex. It is possible to take out a mortgage in the local currency, but this carries substantial risk. Currency fluctuations between the Pound and the Euro could leave you owing much more money than you anticipated. Some lenders offer Euro mortgages on the condition that your salary or pension is paid in Euros.
The heat is on
You could be forgiven for thinking that once you officially own your sunshine residence, you can finally relax with that cocktail. Not quite. Make sure you know about the inevitable variety of ongoing local taxes and service charges. Utilities may only be connected if you can pay by direct debit from a local bank account but many familiar UK names have branches or affiliates overseas which may make the process easier. Don't forget to factor in any ongoing exchange costs. Ask your UK home insurer whether they provide overseas cover. If not, there are specialist companies in the UK which can help if you would prefer not to use a foreign insurer whose policies tend to provide more limited cover.
Death and taxes
Usually, you will become a 'non resident' for UK tax purposes if your employment abroad takes in a full tax year and you do not come back to the UK for more than an average of 91 days each tax year. But any rental income from your overseas property will have to be declared in the UK. There may also be local tax implications if you rent or sell the house although many countries have reciprocal tax agreements with the UK so that you don't end up paying tax twice. Only your main home is exempt from Capital Gains tax in the UK so expect a bill on any profit you make when you sell your overseas property.
You also need to make an additional will to dovetail with your UK will, as local inheritance tax laws may also come into play. For example, in France and Italy a property cannot be passed solely to a spouse, but must be shared among any children. Seek professional advice for all tax and inheritance planning.
Next: Dos and Don't of buying overseas
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