Esquire,1 January 2007
If you’re seriously viewing property, you need to consider the total cost of purchase, including legal and agency fees, taxes and annual charges. A 10 per cent upfront deposit is also usually required to secure a property.
“Buying abroad is different to the UK,” says Stephen Marcon, international mortgage advisor with Connect Overseas. “You don’t get the same range of mortgages and you’ll have to prove you can afford it.” A bank or broker specialising in overseas finance can advise how much you’ll be allowed to borrow and you’ll be required to submit wage slips and bank statements to prove your income (unlike the UK, possible rental income is not allowable factor when taking out a buy-to-let mortgage with an overseas bank).
Barclay and Lloyds TSB offer overseas mortgages, while most other banks operate through partners to arrange local mortgages for properties in France, Spain and Portugal. If you are buying in a country without a mortgage system, such as Argentina or Montenegro, you can remortgage a UK property but, according to Marcon, if you don’t own in the UK you won’t get financing for these higher-risk locations.
Pitfalls to avoid
1. Interest rates
Rate rises abroad will affect your payments, so don’t assume they’ll stay low. Even a slight change in exchange rates can affect the cost of the property: an upsurge in the weak dollar, for example, would be grim news for those buying in the US, so allow for this in your budget. When rates are good, you can book currency in advance through brokers such as HiFX (www.hifx.co.uk) and Moneycorp.
2. Property flipping
Property flipping is when you buy a property under construction and sell it before it’s finished, taking advantage of any capital gains and bailing out before the mortgage kicks in. Fine, theoretically, but a change in the market could leave you with a property you can’t shift and a mortgage you can’t afford.
“Go in with your eyes open,” says Stephen Marcon. “ Have a plan to complete on the purchase order if you can’t sell and remember that some sales contracts don’t allow flipping.”
Check that your solicitor covers this as part of the conveyancing process and always use an independent lawyer rather than one employed or recommended by the developer.
3. Guaranteed rent
In a guaranteed rental programme, the developer leases back the property from the buyer for a fixed period, paying a percentage of the purchase price (often around 6 per cent) in place of rent. “However, guaranteed rents can camouflage a poor rental market,” says Stuart Law of Assetz, so once the fixed period (usually two years) is up, you may struggle to rent out the property yourself. Law advises buyers to check local demand is actually there and recommends longer term leases (at least ten years) offered by well-known hotel or resort chains, rather than developers.
4. Buy-to-let
Landlords often assume rental income will pay their mortgage, but rising purchase costs and interest rates means rent will probably only pay basic outgoings. “Have an exit strategy,” advises Ready2Invest’s Alice Crossick. “Think who is going to buy your property if you need to sell.”