The process of paying for a property abroad isn’t a world away from the one at home – British buyers often top the table of foreign buyers in hotspots across Europe. But there are still a few key factors to consider. For example, legal processes and fees can differ, and you will certainly need to keep a close eye on exchange rates.
The advantage of purchasing property abroad, apart from any lifestyle or weather upgrade, is that you can snap up some terrific deals if you pick your country wisely, time your transaction effectively and handle your exposure to currency market volatility well. There are plenty of countries where your British pound goes much further, and where property prices in general are way below the UK average.
So, if you’ve found your dream villa, finca, farmhouse or condo overseas, here’s how to go about paying for it.
Start with an independent financial adviser
The peace of mind a financial adviser can give you is often priceless. If you’re purchasing an overseas property to use as your main home, an independent financial adviser can clarify your position on tax residency, pension entitlement and choosing a mortgage provider. Meanwhile, if you’re planning on your property being a buy-to-let or second home, there will be likely be income tax implications on rental earnings and capital gains tax when you sell, too.
Main ways to pay for an overseas property
Our complete guide to purchasing a property overseas outlines the most important steps in the process. Once you’re ready to make an offer, these are the most common ways to seal the deal:
Borrowing from a UK lender
You might be able to borrow from the bank you already know at home.
Pros: If you can find a UK bank that will lend on an overseas property (usually banks with overseas branches in the country), you can follow a process that’s familiar (and conducted in English).
Cons: Only a handful of banks offer overseas mortgages and you’ll typically pay higher rates to balance the increased risk for the bank.
Remortgaging your UK home
There’s another way to keep a UK lender in the loop – by releasing equity from a home you already own and using the money to buy overseas.
Pros: This can be a good option if you can purchase an overseas home outright with the funds from remortgaging, or plan to use the overseas home to generate rental income.
Cons: There’s a danger of overstretching your borrowing, and you’re taking equity out of your UK property.
Securing an overseas mortgage
Even as a British citizen, it’s possible to obtain a mortgage from a lender in the country where your overseas home is located.
Pros: As long as you meet the criteria, the process can be surprisingly streamlined, particularly in countries with a well-trodden path of UK buyers, such as France and Spain.
Cons: Many lenders will require you to obtain residency and a local bank account. Loan terms can be shorter than in the UK and age limits may apply. Your max loan-to-value (LTV) ratio may also be lower, so you could have to stump up a higher deposit than you would in the UK. The process of income verification is also rigorous, so assemble your credit reports and financial statements well in advance.
Paying with cash
Perhaps you’ve sold your UK home or accumulated enough savings. In that case, you could simply pay for your overseas home in cash.
Pros: This is the simplest of all the options and you’ll be at the front of the queue as far as sellers are concerned.
Cons: Any funds must be fully traceable to comply with anti-money laundering regulations, and you must be particularly careful when it comes to verifying property deeds, liens and contracts.
How to pay for a property abroad
As in the UK, you’ll transfer the deposit first. In countries such as France, this establishes a binding agreement that gives you greater peace of mind. Otherwise, your contract will state the settlement date for the full balance to be paid.
Shield your currency
Many buyers overlook the impact of currency exchange rates on their overseas payment. You’re going to be transferring a significant sum into a foreign currency, and, if you have a mortgage, making regular transfers for the payments. With the support of a currency specialist, you can take full advantage of periods when the exchange rate is in your favour and limit your exposure if the pound is weaker.
Don’t forget other costs
When you’re calculating how much you’ll have to pay for your property abroad, take into account that there will additional costs not included in the house listing price, which can vary significantly depending on where you’re buying.
The main ones to watch out for typically include:
- Survey, notary and legal fees
- Estate agent commission
- Stamp duty. You may pay a higher rate as a foreigner, as well as a foreign buyer surcharge
- Property or transfer tax
- International transfer fees – many banks will charge you to move money abroad but using a currency specialist can be more cost-effective
Best of luck on your property buying adventure! If you’re keen to start building a plan for your purchase, check out our range of overseas property buying guides for practical, actionable tips and guidance.
Currency Zone
For guidance on protecting your property budget against currency fluctuations, head to our Currency Zone. We partner with Lumon, a trusted currency specialist with over 25 years of experience helping international property buyers. Choosing to work with a currency specialist rather than your high-street bank will allow you to benefit from competitive exchange rates and specialist currency knowledge. For more information, head to our Currency Zone.
Written by Lumon for Rightmove
This article is provided for general information purposes and does not constitute legal, tax or other professional advice from Lumon or its subsidiaries, and it is not intended as a substitute for obtaining advice from the relevant professional services. We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date