Buying Abroad

Fed up with the bleak British winters? Why not buy a holiday home in sunnier climes. Buying a home in a foreign country is not the same as buying in the UK though. There are different rules, different tax laws, and legal loopholes. It's a big decision and it can involve a lot of hard work, often at a distance.

There are two ways to buy your foreign home: you can remortgage in the UK or you can arrange a new mortgage on your second home.

Remortgaging is the easiest option - by releasing equity in your first home this means you can buy your second home outright without the need for getting another mortgage. But this option may only be suitable if you own your home outright.

Or you can get a mortgage to buy your second home from a foreign or UK lender, although a UK lender is a safer bet. Foreign lenders are often not equipped to deal with UK borrowers and you may have to open a foreign bank account - often a laborious and lengthy process. In the UK, Norwich & Peterborough, Barclays and Abbey National lend money for holiday homes. If you use a UK lender, most will give you 60%-80% of the property value depending on the country. The mortgage term is shorter at 15 rather than 25 years.

As with buying a place in the UK, you have to consider very carefully the suitability of the property itself, the location and the local amenities. Find out if the area is susceptible to natural disasters such as earthquakes. Many lenders and estate agents now have agents, consultants and foreign lawyers working for them so you should be able to get advice on all aspects of the property buying process, from finding a local solicitor to finalising property taxes. Check you agent belongs to a trade body such as FOPDAC which will give you added protection is something goes wrong.

Another aspect you can look into when thinking about how much you can afford to borrow, is that of a rental income. If you are going to have a spare room, you could rent it out to a lodger (tax free up to £4,250). This is particularly significant because some lenders will factor this into the mortgage affordability equation. It doesn’t sound like a lot but it might just be that extra little bit that you need to get on the property ladder.

Expect to pay 10% in fees on top of the property cost in Portugal, Spain or Italy and 15% extra in France. Mortgage registration, VAT and legal fees are much higher on the continent, although property prices tend to be cheaper.

In Italy tax avoidance is expected so the official value of your property can be as low as 50% of the full purchase price.

Under Spanish and Portuguese law you automatically take on any current debts on the property when the sales goes through.
Homes Overseas and World of Property organise exhibitions covering different types of property all over the world.

You can get plenty of tips and invaluable advice on buying abroad on channel 4's 'A Place in the Sun'.

Money

Affordability is the major consideration when choosing a mortgage.
Typically most high street lenders will lend a single person between 3 and 3.5 times their pre-tax salary.
Other credit commitments, such as to a credit card or personal loan will generally not be taken into account.
Some lenders will also allow you to add a proportion of any regular bonuses you receive to this base figure.
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