Note: On 23 June 2016, the UK held a referendum on its membership of the EU, with a 52% majority voting in favour of the UK leaving the EU. The legal references in this blog are accurate as at the date of writing, 25th March 2017. Do you dream of watching the sun set on a Greek Island? Or living amongst the locals in a French village, visiting the produce markets and drinking the local wine? Then a holiday home may be the best purchase you ever make. So how do you go about purchasing a holiday home? What are the pitfalls you should watch out for? Our guide will answer all your questions and more.
You need to clarify why you want to buy a holiday home. Is it purely for your own use or are you looking for a long-term investment? Would you like to rent the property out to others whilst you are not using it? Do you want a new home or a fixer-upper that you can work on over time? How will you plan your tax liabilities on the property?
So many questions. And this is before you even get to decide on the fun stuff like the locations you would like to start searching for your home away from home and how many bedrooms it will ideally have.
Write down a clear plan and make sure you have an exit strategy. If you change your mind, you want to be able to sell up quick and salvage most, if not all of your capital.
There are a number of ways you can find your dream home abroad. The internet is a great place to start of course, but once you narrow down your options, a local estate agent (or developer if you are buying off-plan) should be used. Although you must take everything they say with a pinch of salt (after all, they are working for the seller), they will be able to organise viewings and give you an idea of the neighbourhood and surrounding facilities.
If you cannot pay cash for your second home, or you need to borrow money to fix the house up, there are a number of options available for obtaining finance.
One option is re-mortgaging your UK property to raise funds. The risks associated with this option will depend on your circumstances and how much equity you have in your UK property.
You can arrange a mortgage from a UK bank, but most will only provide mortgages on properties in countries that they have an established office. If you are looking at buying in France or Spain, you will find the process relatively straightforward, but go further afield, such as Mexico and you may find you have to apply for funds from a local lending institution.
Finally, you can apply for a mortgage from a bank in the country you purchase the property in. If you do this, it is advisable to use a specialist broker who can negotiate the terms for you and explain the risks. You will also have to bear in mind that currency fluctuations can greatly alter your payments and overseas lending institutions tend to demand higher deposits (up to 30-40%).
When buying a property overseas, due diligence is vital. Not only must checks be made on the house itself (through conducting the correct surveys and requesting building and engineering reports), but the seller should also be investigated. Have they sold properties to overseas investors before? How long have they owned the home? Why are they selling? And if you are obtaining a mortgage from a foreign lending institution, make sure you assess its credibility and stability.
The tax and charges you will be liable for will depend on the structure and details of your purchase. If you rent the property out when you are not using it, you will have to pay income tax in the UK. However, you may also have an income tax bill in the country your property is in. You will also need to pay capital gains tax if you sell the property and in some cases, inheritance tax.
Council tax will also be payable, and you will need to investigate charges for water, utilities and up keeping the property whilst you are not in residence.
To ensure your purchase goes through smoothly you will need a clear, concise, comprehensive sales and purchase agreement. If you are planning to let the property, you will also need a lease agreement drafted. Finally, the contract between you and any property management company you engage will need to be examined thoroughly.
Make sure all contracts are translated into English, even if you speak the local language well. Fine print details can easily get lost in translation.
There are multiple opportunities and options to buy a dream place in the sun. If you are concerned about the impact of Brexit, then it may be wise to look to the Caribbean or even Asia to purchase a holiday home. However, if your dream is to purchase somewhere on the Continent consider this; there will never be a ‘perfect time’ to buy, and markets are always subject to rise and fall. If you are not looking for a quick sale and plan to hold onto your purchase long-term, and your financial risk it low, then now is as good a time as any to fulfil your sun-soaked ambition.
You can search Solicitors Guru today to find a solicitor to help you purchase a property abroad.