HOLIDAY-HOME INVESTORS SHOULD READ THE SMALL PRINT
How can you finance an overseas property?

1:Re - mortgage your existing home to buy the overseas property outright.
Beware, your main home is at risk.

RISKS:
A: Rising interest rates
B: A change in circumstances making your new level of borrowing unaffordable.
C: Your monthly repayments may be significantly affected by currency fluctuations.

2: Take out a separate mortgage secured on the new property, using a foreign lender or a euro mortgage available through some UK lenders.

RISKS:
Your monthly repayments may be significantly affected by currency fluctuations.

Buy-to-let mortgages are much harder to obtain, especially in continental Europe.

Majority of lenders are very conservative when assessing applications for second-home loans. (The usual maximum is70% of property value)
  
You must prove how you can cover all your existing outgoings as well as the proposed repayments, from a third of your net income.
Rental income can be included.

Realistic returns and expectations:

You can expect gross annual returns of 6% to 10% of the value of the property in the most popular areas. However, these are not achieved automatically.

You will need to take into account cleaning and maintenance costs, local taxes, insurance, and your liability for income tax on rents.

It is important to be realistic about likely rental returns when working out what you can afford.

A recent article by Adrian Medd, chairman of the Federation of Overseas Property Agents, reads ” do-it-yourself marketing can work wonders if the property is good and you promote it well through websites, but building up business takes time. The alternative is to pay a management company to promote and look after the property, although this can cost as much as a fifth or quarter of your letting income. “

It is of vital importance that all of the details of such arrangements are thoroughly checked by an independent lawyer who speaks Spanish and English.

INITIAL DEPOSITS:

You will often need a higher percentage of the overall price than one would expect to pay up-front back home plus legal and surveyors’ fees.

Specialist overseas property lawyer John Howell suggests £30,000 as a minimum lump sum to be kept in reserve.

CURRENCY RISK:

There will always be a currency risk involved in the purchase, particularly if you are buying off-plan.

You will need to make staged payments in the run-up to completion.

The purchase price may be set as much as two or more years in advance of handing over the final balance.

Buying currency in advance from a specialist broker can mitigate potential losses, although you may lose out if exchange rates go the other way.

LEGAL PAPERWORK:

One of the most important aspects of buying property abroad is the legal paperwork.
 
LAW:
Property law in most European countries requires buyers to commit at an earlier stage than in England and Wales.

BEWARE:
Do not make a formal offer or part with any money until you are sure you want to go ahead.

The appointment of a good notary to oversee the purchase is essential, especially if you are buying direct from a developer. However, most overseas purchases do run smoothly. (Establishing clear title to properties can be a particular problem in some East European countries.)

A LEGAL FIT:

Notaries act for the state rather than you, it is important to appoint an English-speaking lawyer and/or a UK-based one to look over the paperwork.

They should en sure the purchase is handled in a way that best fits your legal and tax position in the UK.

This will cost more, but can make a huge difference in the long run, if only in terms of your future capital gains and inheritance tax liabilities.

MAKING A WILL:

It is of paramount importance to make a new will to enable you to leave the property to your heir to avoid the pitfalls of local succession law.