Whether you’re looking to relocate to your dream destination, purchase a holiday home or earn additional income on an investment property, buying a home overseas is an exciting venture.

However, when buying property in a foreign currency, there are some important things to consider. Here’s a rundown of the most crucial points:

1. Exchange rates

Currency exchange rates can fluctuate significantly, impacting the overall cost of your property. If the currency value changes before you complete on the sale, it may affect the final purchase price, so it’s a good idea to monitor exchange rates and consider using a forward contract to lock in a favourable rate.

It’s also worth remembering that exchange rates can impact long-term costs like mortgages. Fluctuations can affect your monthly payments and increase your overall costs.

Before buying property in a different currency, ensure you are aware of the current exchange rate, how it has been trending and any predictions for future changes.

2. Interest rates

If you are taking out a mortgage to buy your overseas property, you will need to decide whether to do this with a provider in your home country or the country you’re buying in.

When making your decision, be sure to compare interest rates with different providers and note that local interest rates may differ significantly from those in your home country.

Not all banks provide mortgages for foreign properties. If yours doesn’t, an international lender or specialised financial institution may be able to help.

3. Currency conversion fees

Banks and currency exchange services usually charge foreign transaction fees for converting money.

For large sums of money, these fees can really add up, so it’s wise to compare multiple providers to find the best deal.

Money transfer services that specialise in currency exchange often offer lower fees than traditional banks.

4. Tax and legal implications

Different countries have different taxes and laws related to property purchases. Certain countries restrict foreign ownership or impose additional fees, taxes or requirements for foreign buyers.

Some countries have agreements that prevent double taxation – but it’s crucial to understand the tax obligations in both your home country and the country where the property is located to avoid penalties.

To ensure you understand all the tax and legal implications, it’s a good idea to consult with a local property lawyer.

5. Market conditions

It is important to understand the real estate market in the country the property is located. As well as property values, demand and currency stability, look at the political stability of the country, as this can affect property values and ownership rights.

If you’re planning to rent out the property, research local rental rates to gauge potential income and ensure you’re getting the best return on your investment.

6. Ongoing currency management

To simplify payments and reduce conversion fees, consider opening a bank account in the currency of the property’s country.

It’s also worth looking at property insurance requirements, as these differ between countries and costs can vary. Make sure you understand what insurance you’ll need, and how much it will cost.

Finally, if you’re planning to live in the property, it makes sense to consider the cost of living in that country.

7. Long-term financial planning

When you’re in the process of buying a new home, you’re not always thinking about when you’re going to sell it. But it can be helpful to look at future financial implications – especially when buying an overseas property.

One thing to consider is the currency exchange rate at the time of the resale. If you sell in the foreign currency, exchange rate changes may affect your profits when converted back to your original currency. It’s also worth checking whether capital gains tax applies in the foreign country and/or your home country. If so, you will need to calculate the tax impact on your returns.

 

By carefully addressing these factors, you can make informed decisions about buying property in a foreign currency to better protect your investment.

For more information about sending money overseas, download Smart Currency Exchange’s free guide, ‘The Property Buyer’s Guide to Currency’.

 

Currency Zone

For guidance on managing your exposure to the ever-changing currency markets, head to our Currency Zone. We partner with Smart Currency Exchange, an FCA-authorised currency specialist. Choosing to work with a currency specialist rather than your high-street bank will enable you to benefit from their competitive exchange rates and specialist currency knowledge. For more information, head to our Currency Zone.

Written by PropertyGuides for Rightmove