Now is the time to bag a bargain abroad

May 30 2009 by Lain Laing, The Journal

Buying a property abroad can offer the opportunity of an enhanced lifestyle for you and your family, an appealing prospect in the current climate.

Following a year or two of caution, UK investors are now being tempted back into the overseas property market. Following a downturn in people buying abroad, developers in places such as North America, France, Spain and the Caribbean are now offering some fantastic discounts to tempt people back into the market. And with interest rates at an all-time low worldwide, it could be a great time to invest in that dream home in the sun.

As well as lifestyle and climate benefits, an overseas property can provide the opportunity to build a nest egg if you choose to generate rental income from your holiday home. If you’ve been left a sizeable inheritance, a well-chosen overseas property can benefit the whole of the family. However, there are many financial and legal implications that should be considered and thorough research is essential.

Make sure you spend plenty of time talking to locals and other UK residents who have purchased property in your chosen destination. This will allow you to get as much information as possible about the property market.

It’s also crucial to familiarise yourself with the buying process of the country you are purchasing in, as the process may be different to what you’re used to. Also, make sure you carry out checks on the company you are buying from and agents you are dealing with.

There are a number of ways to go about financing the purchase of an overseas property, each offering advantages and disadvantages which need to be weighed up.
Always seek specialist independent financial advice to help assess the best option for you.

Here are some of the options available to you and some of the issues you should consider.

Obtain a mortgage (Click Here For Details) from a UK lender - there are now lenders offering mortgages for the purchase of overseas property, however they usually require a substantial deposit with higher rates than normal, typically a 30 to 40% deposit is required.

Take out a mortgage from the country (Click Here For Details) you are purchasing in – there can be high set-up costs attached to this option and you may incur taxes and fees up to 2.5% of the mortgage value. One advantage, however, is that the local interest rates are usually lower.

Obtain a release of equity from UK property to fund a cash purchase – If you have gained substantial equity on your UK property, you could take advantage of this. However, be prepared for an increase in your monthly mortgage payments.

Pay the full cost of the property outright in cash – If you have a lump sum of cash, through inheritance, this could be the best way to purchase your overseas property, as it’s much easier to buy abroad if you can do it without a mortgage. However, it’s important to consider the exchange rate of the required currency.

However you decide to go about funding your overseas property, it’s essential that you know the price of the property in local currency or it could end up costing you more than you had planned due to currency fluctuations.

It’s important to allow for a change in exchange rates (Best Exchange Rates) in your financial planning. Florida was once a popular location for Brits buying abroad but with the pound weakening against the dollar over the past 12 months, some will be left with a more expensive mortgage. Make allowances and always negotiate the best deal on the property beforehand.

Allow for other hidden costs, such as repairs, management charges and local land taxes.

Tax is another important consideration, as your tax situation will be affected as a result of property purchase in a foreign country. Britain has a dual tax agreement with many other countries.

It is important that expert advice is sought on issues, including capital gains tax, income tax and inheritance tax.

In the UK, inheritance tax starts to bite on worldwide assets valued at above £325,000. Even your Will could be affected by having a property abroad.
It is advisable that you have your Will made out in your country of residence, as well as in the country you are buying your property in.

Once again, independent legal advice should be sought.

Having a holiday home in the sun can be a lot of fun for all of the family and if you carry out thorough research and choose a destination that’s easily accessible via cheap flights and which appeals to the rental market, you could end up making money in the long run.

However, when making any major investment it’s important to consider your financial situation to find the best solution for you.

For further information

Mortgage Details

Best Exchange Rates