RFXplainer: Buying property abroad Buying property abroad is no easy task. You have to manage different mortgage and tax systems, sort out visas and permits, all while navigating new currencies and languages. No two countries’ systems are the same either so if you’re still unsure where you want to go, the amount of information available can be pretty overwhelming. But don’t worry. We’re here to help you get started. Since we formed in 2005, we’ve helped thousands of clients purchase properties all over the world. Although we specialise in helping with their international payments and getting great exchange rates, their account managers are often by their side throughout the journey. Here we’ve put together everything we’ve learnt in that time and combined it with heaps of expert advice and information. If you’d like to speak to one our currency specialists on how they can help you pay for your property abroad, click here. Finding property abroad Initially, finding a property abroad isn’t a whole lot different to finding one at home. You decide where you want to go, what you’re looking for and what your budget is, then you start searching. However, it can still be difficult to know where to start. You have two main options: Finding overseas property online Most major property websites like Rightmove, Zoopla and OnTheMarket host overseas properties and an increasing number of UK estate agents have even started selling them themselves. These sites are by no means comprehensive but should give you a good idea of what’s available and for how much. Overseas estate agents will often also have websites just be prepared for some questionable translations from your internet browser. Visiting agents, properties and developments abroad If you’re abroad, you can go and speak to local estate agents for yourself. They’ll be able to show you properties, tell you about the area and give you a clearer idea of the local market. A great resource for this is the Association of International Property Professionals (AIPP). However, the most important people to speak to are the locals and the expats. It’s a lot easier for an estate agent to oversell an area or property when you’re arriving with no real knowledge of the region. If you’re thinking of moving into a development of new build properties, it’s not uncommon for these to be ‘off-plan’. That means they’re yet to be built. This shouldn’t be a cause for concern – it happens in the UK all the time – but you should make sure you have legal protection regardless. Getting a mortgage Just like if you’re buying a property at home, unless you’re incredibly wealthy, you’re going to have to get a mortgage to purchase your property abroad. However, whereas in the UK you can get a mortgage with as little as a 5% deposit, most countries abroad will be looking for more like 30%. Minimum. Of course, that doesn’t mean it isn’t possible. Just look at how many brits live abroad. You just have to be prepared and know which option is best for you. The three main options are: Getting a mortgage from a UK provider You can’t get a regular UK mortgage to buy a home overseas. Instead you’ll have to get an ‘overseas mortgage’. A number of leading banks like Natwest, HSBC and Santander offer mortgages for property purchases outside the UK. However, these are often only available in countries where those banks have offices and can still be quite hard to get. There are specialist UK mortgage lenders who focus on overseas lending and there are also mortgage advisors who focus on the same thing. It’s probably best to talk to one of them first to see how viable this is – and avoid a mortgage rejection on your credit score. Getting a mortgage abroad You can also look to get a mortgage in the country you’re buying in but it’s highly recommended you use a specialist broker with specific knowledge of the country. They’ll be able to help with the broader stuff like the language barrier as well as the intricacies of the local market. They can also secure you favourable interest rates and repayments, handle paperwork and arrange any translations you need. Make sure you really do your research though and only go with someone you really trust. Overseas brokers aren’t regulated by the Financial Conduct Authority (FCA), so if the advice you get turns out to be wrong you won’t be compensated. However, other countries may have their own regulatory bodies. Another thing to bear in mind is that lenders abroad are a lot more salary focussed and will also take into account how much debt you have. For example, in Spain, all mortgage providers use a ‘debt-to-income’ calculation. This basically means the debts you pay each month must not exceed a given percentage, often around 30-35%, of your net monthly income. They’ll also factor in the potential repayments of the mortgage they would offer you. Borrowing in a different currency also leaves you at the mercy of the foreign exchange market and its impact on your payments. There are a number of things you can do to mitigate against this which we’ll get into later on. Remortgaging your home to buy property abroad If you’re lucky enough to already own a home and paid off a large portion of the mortgage, you can always remortgage it and put those funds towards buying somewhere outright. The advantage of doing this is that you’re able to avoid the difficulties that come with applying for either an overseas mortgage from a UK bank or getting a mortgage from a bank overseas. You can instead deal with a mortgage system, property market and currency you feel more at home in. If you think your current property is in a position to be remortgaged – i.e. you’ve paid off a healthy portion of the mortgage while its market value has risen – then you should speak to a mortgage advisor about your options. Getting the right support Just like in the UK, buying property abroad isn’t a solo task. You’ll need a mortgage broker, a solicitor, a surveyor, an estate agent and as you’re abroad you’ll also need an interpreter and a translator (these aren’t always the same person). And just like the UK, estate agents abroad will try and get you to use their people. You don’t have to. In fact, if you’re buying abroad it’s even more vital you get support from independent, trusted sources. Especially when it comes to legal and language advice. The UK government’s own guidance on buying abroad states this firmly: “Many property owners encounter problems with their property because they did not seek independent legal advice and instead used lawyers and translators/interpreters who were recommended by the estate agent or developer and in some cases were acting for both parties. Appoint an independent English speaking lawyer who is licensed to practice and is experienced in property sales. “Be wary of using a translator or interpreter that has been recommended by the agent or lawyer.” Paying tax on properties overseas If you’re buying property abroad, prepare for your tax situation to get a whole lot more complicated. Not only will you have to navigate a new country’s tax system, it will also impact your tax status back in the UK. You’re best speaking to an accountant to get the full picture but these are the main things you’ll need to consider. Bear in mind, however, there are UK government measures in place to help you avoid paying tax in two countries. The amount you can claim back will depend on a number of factors but primarily it will be the tax treaty the UK government has with the country you own property in. You can read about those measures here. It’s also worth noting that if you plan to make your overseas property your permanent home, a number of these will either be reduced or not apply and you’ll have ‘domicile’ status. In the UK Income tax on rental properties If you’re purchasing a property to let as a holiday home or full time rental, you’ll need to declare that rent as income and will be taxed on it the same way you would on a UK rental property. Capital gains tax on property sales Be aware that when you eventually sell your property, you’ll need to pay capital gains tax in the UK. This is tax on the difference between the buying price and selling price. Inheritance tax You have to pay inheritance tax on all worldwide assets, so if the worst was to happen, your loved ones would still need to pay inheritance tax on your home overseas. Overseas All countries have different tax regimes so there’s no definitive rule here. But most countries will look to tax anyone from abroad on property they own, whether that’s on the purchase or sale or just general ownership taxes. As mentioned, you can get tax relief on most taxes you end up paying twice (e.g. income tax on a property you’re letting. However, if there isn’t a UK equivalent of the tax you’re paying overseas it’s highly unlikely you’ll be able to claim that back. Purchasing property in a different currency Something that’s often overlooked when you’re considering purchasing property abroad is just how much the foreign exchange (FX) market can impact how much you pay for your property. It’s literally the difference between thousands of pounds. If you’re buying something outright, likely tens of thousands. Think of it this way. At the time of writing (June 2021), the highest GBP/EUR has reached in the last 12 months is 1.17734. That means for every pound you would get around €1.18. At its lowest point, it was 1.08027. If you’re buying a €150,000 property in Spain and you need to put down a 30% deposit – the minimum you’ll likely get away with in Spain -, you’ll have to front €45,000. Well, when GBP/EUR was at its highest point this year that would mean paying just over £38,000. When it was at its lowest, you’d need to stump up closer to £42,000. If you were buying it outright, the difference would be over £10,000. When you’re moving house in the UK, that’s a lot of money. Even more so if you’re going abroad. Luckily, there are a number of ways you can mitigate against changes like this. Most foreign exchange providers offer a number of different contracts – sometimes called trades – that do just that. The most preferable one for a property purchase is a ‘forward contract’. It allows you to lock in an exchange rate for an extended period of time. So, for example, if GBP/EUR hit a one year high, you could contact your FX provider and they would lock that contract in for you. When it comes to finally paying for your property, you get to do it with a very favourable rate. At RationalFX, we often set these for up to two years. For more information about this get in touch with one of our currency specialists or check out our dedicated RFXplainer on types of FX contracts. The UK government has put together a very handy checklist of practical things to be aware of which you can find here. If you’d like to speak to one our currency specialists on how they can help you pay for your property abroad, click here.