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Property Investors Dream Of Owning Property Overseas

Property Investors Dream Of Owning Property Overseas

Imagine owning Property in Fethiye, a small Mediterranean resort on the beautiful Turquoise Coast of Turkey, or a stunning residence in Tuscany with beautiful sea views. Both have plenty of appeal for holidaymakers and offer a perfect retreat from the hustle and bustle of the daily grind.

Buying property in another country can be a very rewarding experience and an exciting prospect, but the purchased accommodation needs to be able to pay for itself when you are not using it, so do your research thoroughly and purchase wisely!

Many property investors dream of owning their own piece of their favourite holiday destination, but investors should be warned not to let their hearts rule their heads.

It’s crucial to seek the right advice and try not to cut corners. The principles that property investor should stick to in the UK also apply when purchasing overseas property.

Below are a few tips to ensure that purchasing a property in a foreign country is as hassle-free as possible.

  1. 1.   Contracts

Never sign a contract that you don’t understand. If two versions are provided, i.e. English and local language, ask your solicitor to confirm the English version is a true translation, as you need to ensure it doesn’t contain errors, omissions or extras.

Always read the contract. Ensure you are fully conversant with the terms and conditions you are about to agree to.

Specific points to be clear about include:

  • What deposit is required? Is it refundable and under what circumstances?
  • For new properties, what stage payments are required and when?
  • What is included in the price and what is the cost of the extras?
  • Check the due completion date.

 2.   Obtain an Approval in Principle

If you require mortgage finance, obtain an ‘Agreement in Principle’ for the mortgage before agreeing to purchase the property, or before signing any contracts and paying a deposit. This will tell you exactly how much you can borrow and the price range you can realistically consider.

It will put you in a much better position with agents and developers, proving to them that that you’re a serious buyer, and you’ll be better placed to negotiate price. It’s tangible evidence that you can take along when house hunting and it can also lead to your application being fast tracked once you’ve chosen your property.

3.   Valuation

Before proceeding with the purchase (especially with a re-sale property, regardless of age), ensure an independent valuation of the property is carried out, which should point out any problems with the property – e.g. subsidence, damp, wiring defects – and could also highlight any possible boundary disputes.

4.   Legal advice

Seek specialist counsel from an independent English-speaking solicitor who is not connected to your seller, estate agent or developer. If required, you can also consult valuers, surveyors or architects. They should be proficient in your chosen country’s laws and processes and also know the specifics involved in buying a property there.

It’s essential that they confirm to you that all required permissions, licences and planning consents have been obtained. In particular, your lawyer should check that you’re buying a property with the correct title. And that you are being registered as the official owner.

One of the biggest advantages of taking out an overseas mortgage is that the lender will do its own checks on the property, ensuring that a proper legal title exists, that the property is registered in the buyer’s name and that a valuation of the property takes place.

5.   New build properties

If buying from a developer

  • What’s their track record?
  • How long have they been trading?
  • Are references available from previous buyers?

Check comparable properties in the area and any re-sales offered on the same development.

If the developer mentions ‘rental returns’, what are these based on? Check they’re feasible and have been achieved in the past.

Before making any commitment to purchase, allow for a cooling off period, just in case you see a must-have property and are tempted to put down an instant deposit.

6.   Research

Conduct thorough due diligence and research on local facilities and transport links. People gravitate to locations with a nearby airport, (especially if it’s served by a budget airline), but remember there are no guarantees that cheap flights will continue indefinitely to any one location. Proximity to basic facilities like restaurants, shops and a beach are also important.

Talk to people who already live or own property in your chosen area, to get a better understanding of what it’s like to live there. Also consider the property off-season, many resorts are seasonal and virtually close when the tourists return home.

7.   Exchange rate fluctuations

Even small changes in exchange rates can make a big difference to

  • The purchase price of your property overseas
  • Monthly mortgage payments
  • Future rental income.

Consider the benefits of financing your property with a mortgage secured in the local currency – e.g. if you’re planning to rent out a European property through agents local to the property, the euro income can be used to service the monthly euro mortgage payments, avoiding any fluctuations in currency.

8.   Local money

Open a bank account in your chosen country and, where relevant, ensure you obtain a Certificate of Importation for the money you bring in from your home country.  

Set up standing orders in your local bank account to meet local bills and taxes. Failure to pay your taxes in some European countries such as France, Portugal and Spain, could lead to legal action by the Government authorities.

9.   Tax

Check the inheritance and capital gains tax laws of the country where you are buying. For example, in France your children automatically inherit rights to your house; your estate may not automatically pass to your spouse and you may, therefore, need to compile a separate will.

If you take a mortgage out on a property in France or Spain, it may reduce your inheritance tax liability as there is a debt on the property. If you rent out your property you will be liable for income tax.

Seek professional tax advice so that you’re fully compliant and to take advantage of all the possible deductions.

10.    Extras

Bear in mind that bills don’t end at the asking price. Solicitor’s fees, local and national taxes, insurance, etc must all be met in the host country and can often add at least a further 10% to the cost of acquisition. Ensure you are aware of the costs charged by the legal and Government authorities for purchasing a property in your chosen country.

The Prime Minister David Cameron insists that the coalition Government’s plans to take a more pro-active role in the UK housing market is “absolutely right” in order to help struggling potential buyers to raise large deposits.

Speaking at a residential property construction site in Lewisham, Mr Cameron attempted to reassure people seeking mortgage advice, stating that the NewBuy Guarantee initiative will help “unblock” the housing market by providing 95% Loan-To-Value mortgages underwritten by homebuilders and the UK Government.

Three major mortgage providers have so far committed to the Government-backed NewBuy scheme.

Barclays, Nationwide Building Society and NatWest Home Loans intend to back the NewBuy scheme by offering products which will tie in with it. Santander and Halifax are also expected to begin offering similar mortgage products along the same lines at a later date.

The mortgage indemnity initiative will aim to help people invest in property even if they only have a deposit of 5% or 10%.

As well as helping people who are finding it tough to save towards 20% deposits, the project is designed to boost the construction sector by spurring demand for new-build properties.

First Time Buyers (FTB) looking to purchase homes in England worth up to £500,000 could be eligible for the scheme in the months to come. The Government will cover 5.5% of the value of each mortgage provided, while 3.5% will be covered by house builders.

Forecasts suggest that as many as 100,000 UK new build home buyers could gain mortgage funding through the scheme.

Mr Cameron said: “The problem today is we have lenders who are not lending so builders cannot build so the buyers cannot buy and it needs the government to step in and help unblock the market. The new scheme was absolutely right in attempting to lower the requirements to more affordable levels of between “£10,000 to £15,000” with the taxpayer and the construction industry underwriting the high loan-to-value (LTV) mortgages”.

However, as reported on “Spotlight” earlier this week, the scheme has already prompted heavy criticism from opposition parties.Read the full article here 

Labour’s shadow housing minister Jack Dromey was among the first to be openly critical of the mortgage indemnity scheme proposal, publicly stating that the Government needed to invest directly in the building of more new homes.

Some property industry pundits have labelled the scheme as a “gimmick” to boost the ailing UK construction sector.

Even some lenders remain fairly wary of the Government’s plans and are yet to sign up to the initiative, with only three major lenders signed up to take part so far.

Nonetheless, the Council of Mortgage Lenders has backed the scheme as “good news for home-buyers”.

The UK coalition Government’s NewBuy scheme was launched today, (12th March), aiming to provide a much needed boost for people seeking first-time buyer mortgages.

A recent survey by property portal Rightmove questioned over 2,726 potential house purchasers between March 5th and 7th 2012 about their awareness of the 95% NewBuy mortgages and how the new Government backed scheme might affect them.

Their results of the survey found that nearly 2 in every 5 first-time buyers believe that the introduction of the scheme means they are more likely to get on the housing ladder within the next 12 months.

The NewBuy scheme is available only on UK new-build properties.

However, some critics were already questioning the scheme before any official announcement was made.

Labour’s shadow housing minister Jack Dromey claimed that only 3 out of the original 7 lenders were participating, and that the number of developers in the scheme had fallen from 25 to 7.

The Council of Mortgage Lenders, which up until last week was unable to confirm whether the launch was even going to go ahead despite being co-architect of the scheme.

The CML issued a general, guarded statement, adding that it would issue further information when details of the scheme and participants were available.

CML Director General, Paul Smee, said: “NewBuy mortgages will help creditworthy borrowers who simply haven’t yet managed to build up a large enough deposit to gain access to finance to buy a newly-built home. NewBuy is good news for home-buyers, and potentially good news for jobs and the wider economy too. Borrowers need to understand the implications of high loan-to-value (LTV), borrowing, so we will be supporting the initiative with clear consumer information to help people decide whether NewBuy borrowing is an attractive option for them.”

The House Builders Federation (HBF) also issued a statement just days after it too had to admit it did not know for sure if today’s launch would go ahead.

Stewart Baseley, executive chairman of the HBF, said: “NewBuy will help thousands of people to meet their aspirations to buy a new home, freeing up the housing market and helping first-time buyers and those unable to take the next step on the ladder. The scheme will also provide a vital kick-start for house builders large and small who will be able to build the homes and create the jobs that the country desperately needs.

According to the research by Rightmove, 38% of those looking to buy for the first time stated they would be more likely to purchase a home over the next 12 months once the scheme was launched.

The scheme could also benefit ‘second-steppers’ – those looking to sell and trade up for the first time – with 24% of respondents in this group stating they would be more likely to purchase over the next 12 months.

Rightmove director Miles Shipside said: “NewBuy looks set to give a significant housing boost to the fortunes of those who need it the most. We’ve found that raising a deposit has long been the major obstacle for those looking to purchase a new home at the foot of the housing ladder. NewBuy helps address this challenge, and we’ve found that the knock-on effect is that, as of today, nearly two in five first-time buyers will be more likely to getting on the housing ladder via thanks to this initiative. First-time buyers and second-steppers have long been frustrated in their efforts to get on to or move up the housing ladder by prohibitive deposit requirements. Four out of ten first-time buyers cited ‘raising enough of a deposit’ to be their single biggest housing market concern in our recent First-Time Buyer Report. NewBuy opens the door to these groups and can also serve as a great stimulus to help safeguard and create jobs in the new build property sector.”

The HSBC and Yorkshire and Clydesdale banks have already said they will not be participating, and neither LloydsTSB or Santander have deals ready although Nationwide has said it will have NewBuy deals available.

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