Overseas property professional and financial advisor, Simon Conn, provides some essential financial pointers if you're looking to purchase abroad this year.
Despite the storm surrounding Brexit, traditionally popular countries such as France, Spain, Portugal, Italy and the USA remain in the top ten with British people looking to relocate, retire or buy a holiday home abroad.
Pressure on the pound can make the setting up costs and the actual purchase higher for Brits than in previous years but do not let that put you off.
You will need to have the correct visas and resident permits for moving to another country and you may have the same, or different, obligations when compared to natives when it comes to local and national taxes.
Undertake thorough research before committing to a sale and carry out the proper checks. Ask questions about where a property has been built because if it is in an area set aside for green belt or agricultural land, there could be a risk.
Issues can arise when buying both old and new properties. Check that the property is registered with the land registry as in very rare cases a property may not be. Likewise, make sure that any extension to a property has been approved and registered. Some homeowners choose to build in rural areas and not apply for the relevant permissions, as they think there is less chance of getting caught by the authorities, but this is very risky.
I must stress the importance of having a contract translated by a professional. You often receive a contract in the local language and a translation, but unless this is verified by a professional, you cannot be sure that it is identical.
In countries such as Italy, there are ‘pre-emption rights’. These rights can apply to neighbours and farmers and mean that in some cases they have to be notified if a property is going to be sold.
Beware of the inheritance rules in countries such as Spain as it means a property may be owned by several different people (usually siblings). It is not uncommon for one owner to want to sell the property and start sale proceedings, while another does not want to sell, which may halt the sale or cause other problems.
The maximum mortgage term is 75 years in Spain and, similarly to the UK, there is an age cap in place with lenders not usually considering any applicant that is over the age of 70. Applicants over 65 could also expect a lower loan-to-value percentage and if life insurance is compulsory it could become expensive. Pension income (after tax) may be acceptable in some cases. Spain typically has a 70% loan-to-value ratio, with better lending terms available for loans of 60% or less.
There is not normally an age cap on US mortgages but the maximum term is 30 years. Mortgages in the US are different as they are underwritten on any taxable income and assets at the time of application. This means that if the applicant can currently afford the repayments, they could be granted a mortgage for up to 30 years. In the majority of cases, there are no early redemption penalties, so a mortgage can be cleared at any time during the term agreement. Mortgages are generally available at 70% loan-to-value or up to 75% in Florida.
The mortgage age cap is 80 and lenders base the mortgage agreement on the age of the oldest borrower. The minimum mortgage term is five years. Various incomes are taken into account and can sometimes include 100% of an applicant’s pension income, 75% of the rental income and some banks also take 50% of the investment income. Mortgages are available at around 80%-85% loan-to-value, although better lending terms are available for loans of 70% or less.
The age cap in Portugal is 70 to 75. The introduction of the Golden Visa scheme, which offers residency to non-EU buyers purchasing a property over £500,000, has attracted a lot of overseas buyers which has boosted the market. Lending is not as strict as it was a few years ago and finance is available with some banks lending up to 80% loan-to-value. Better lending terms are available for loans of 70% or less.
In Italy, the maximum age to apply for a mortgage is 70. Mortgages are normally available at a maximum of 60% loan-to-value, although in some cases it can go up to 70%.
Italy remains popular not only for English people but also Americans. Areas of interest include Umbria, Tuscany, Puglia and Sardinia.
Always get your finance approved in principle before signing a contract and if you are applying for a mortgage, ensure any contract signed is ‘subject to finance’. This will help you recover an initial deposit if you are turned down during the mortgage process.
The most important rule for when you buy a property abroad is to get everything properly checked and use an independent lawyer and surveyor so that any potential issues can be identified before you sign anything. Then your dream home should not turn into a nightmare.