Tuesday, March 18, 2008
An essential guide to buying a property abroad
Everything you need to know about estate agents, currency exchange, solicitors, mortgages, tax and insurance
The professionals involved in helping people to buy holiday homes abroad have plenty of horror stories. But most problems stem from a lack of care on the part of buyers rather than that the property is in a foreign country. People act without thinking, according to John Howell, of John Howell & Co, a firm of solicitors that specialises in international conveyancing. He says: “They seem to leave their brains on the carousel at the airport. They forget all the things they would do if they were buying property in Britain — like taking independent legal advice — and end up signing things they do not understand.” To avoid those potential problems, it is vital to use the right professionals:
There is never a shortage of people willing to sell you overseas property, in this country and abroad. But in most countries, including the UK, there is very little regulation of their activities.
Pauline Gallagher, chief executive of the Federation of Overseas Property Developers, Agents and Consultants (Fopdac), says: “Unfortunately the barriers to entry are very low, so it attracts people who see it is as a way of making easy money because of the large commissions paid by developers. This can lead to misselling at inflated prices.”
Fopdac is self-regulating, but members are vetted and must adhere to a code of conduct which among other stipulations requires them to provide consumers with a choice of independent legal advisers.
Another way of making sure you are dealing with a reputable agent is to contact an organisation such as the National Association of Estate Agents (NAEA), which can provide names of members in the UK who specialise in international property.
They also have a number of overseas members and a link to the International Consortium of Real Estate Agents (ICREA), which also has a code of conduct for its members worldwide.
Fopdac, www.fopdac.com , 0870 3501223
NAEA, www.naea.co.uk , 01926 496800
There are two main ways of financing an overseas property purchase if you don’t have the cash. One is to remortgage your UK property, the other is to take out a mortgage on the foreign property. Several UK lenders offer overseas mortgages but mainly in the popular markets. Banco Halifax Hispania and Royal Bank of Scotland International, for example, lend on properties in Spain only; Leeds Building Society and Norwich & Peterborough Building Society lend in Gibraltar and Spain; HSBC in France only; while Barclays lends in Spain, Portugal, Italy and France, and Lloyds TSB in Spain, Australia, New Zealand, Canada and the US.
An alternative is to use a UK-based mortgage broker that specialises in international loans. For example, Conti Financial Services can source the money locally for you. It arranges mortgages in a wide variety of countries. Kevin Fleury, senior partner at Conti, argues that taking a mortgage on your overseas property can have practical advantages. “Interest rates on foreign loans can be lower and the lender will want to make sure the property is properly valued and offers adequate security. Most of the problems I have seen are where people have paid cash for their overseas property and not bothered to check things out properly. If you do pay with cash, you should at least try to think like a bank.”
Banco Halifax Hispania, 01422 333868; Barclays, 020-8298 3223; HSBC, 0800 0858887; Leeds BS, 00350 50602; Lloyds TSB, 01624 638119; Norwich & Peterborough BS, 01733 372006; RBS International, 00350 44166;
Conti Financial Services, 01273 772811, www.mortgagesoverseas.com; Propertyfinance4less, 020-7594 0555, www.propertyfinance4less.com
If you are planning to buy an overseas property with cash from the UK, you will need to convert your money into the local currency. This can be expensive if you use a high-street bank. Fortunately, there is growing competition from foreign currency specialists. They usually offer a better rate, do not charge fees and provide the option of taking out a “forward contract” so you can fix your exchange rate and not have to worry about currency fluctuations. Mark Bodega, marketing director at HIFX, explains: “We are able to cover our costs and make a profit on the spread between buying and selling currency, and still give consumers a better deal than the banks, because their spreads are so wide.”
Caxton FX, 0845 6582223, www.caxtonfx.com; Currencies Direct, 020-7813 0332, www.currenciesdirect.com; Foreign Currencies Direct, 0800 3285884, www.currencies.co.uk; HIFX, 01753 859159, www.hifx.co.uk; Moneycorp, 020-7589 3000, www.moneycorp.com; Travelex, 0870 0100095, www.travelex.com; Capital IFX, www.capitalifx.com, 0870 777 9777
Getting good legal advice is critical. Buyers can end up with question-marks over ownership or be liable for debts, such as bank loans secured against the property by the developer. You may also need to make a local will. Local lawyers may have better local knowledge, but you will need to be sure it is independent. Kevin Fleury, of Conti, suggests choosing one at least 50 miles from a development to make sure that there are no conflicts of interest. If you use a British solicitor who does international conveyancing there is the advantage of a common language and the benefit of knowing that he or she is covered by professional indemnity insurance. Specialists include John Howell & Co, which has several foreign lawyers, and Goldsmith Williams, which has developed relationships with reputable overseas solicitors in a range of countries . The Law Society can supply names of other solicitors in the UK and abroad.
Law Society, 0870 606 2555; www.solicitors-online.co.uk; John Howell & Co, 020-7420 0400, www.lawoverseas.com; Goldsmith Williams, 0151 2311292, www.goldsmithwilliams.co.uk
The tax implications of a holiday home overseas are often neglected. Bill Blevins, of the chartered accountants and international tax specialists Blevins Franks, says: “People often overlook the fact that when they sell their overseas property it will be liable to capital gains tax in the UK, as it is not their principal private residence. There may also be a similar tax charge to pay to the overseas tax authorities.
Fortunately, the UK has double tax treaties with many countries, which means you won’t have to pay twice but you may have extra to pay if the amount charged overseas is less than in the UK.”
Tax may also be payable on rental income; in countries such as France there may be annual wealth tax to pay on properties above a certain value. Inheritance tax also needs to be considered. Last but not least, says Anita Monteith, tax manager at the Institute of Chartered Accounts in England and Wales (ICAEW): “Prospective homeowners should find out about local taxes equivalent to our council tax.” UK accountants will be able to advise overseas homebuyers, and if they don’t know about a particular country they can access specialists through the ICAEW.
Blevins Franks, 020-7336 1022, www.blevinsfranks.com; ICAEW, 020-7920 8100, www.icaew.org.uk
Taking out insurance locally may be your only option in some countries in Eastern Europe or farther afield; your local bank should be able to help. But problems can occur if a claim arises and if you are dealing with a foreign language. That is one of the reasons you may prefer to deal with an insurer in the UK, where you will also be covered by the Financial Ombudsman Service if something goes wrong.
Most UK-based policies such as Saga Insurance tend to focus on popular areas such as France, Spain, Portugal and Italy. HIFX’s policy, underwritten by Norwich Union, extends to Greece and Cyprus, while Andrew Copeland Insurance’s Europlan includes Malta and Northern European countries such as The Netherlands and Denmark. Wherever you take out insurance, make sure it covers you for the periods when the property is unoccupied. Much of Saga ’s cover does not apply if you leave your property unoccupied for more than 60 days.
Saga, 0800 0150751, www.saga.co.uk; HIFX, 01753 859159, www.hifx.co.uk; Andrew Copeland, 020-8656 2544, www.andrewcopeland.co.uk
Posted by Royal Blue at 4:57 AM