May 31, 2017
When looking for a holiday home abroad, it’s easy to get up in the excitement and fun of the house-hunting process. It can, however, be very worthwhile to think ahead about the actual mechanics of the house-buying process and to plan ahead to save yourself both time and money.
Start by making local contacts
Even if you speak the language and have some degree of familiarity with the country and local area, you’re highly unlikely to have the same sort of local knowledge as people who live there and certainly not as experts in the local housing market. Getting the right local help on board can make all the difference to your purchase process, from finding the right home to negotiating the sale and turning the sales agreement into a reality.
Link a sizeable deposit with a forward currency contract
Let us rephrase that in plain English. Up until relatively recently, in the UK it was possible to buy a house without any deposit (in some cases at least). Now, it would be hard for a buyer to find a mortgage without a 10% deposit, but even this would be considered far too small in some countries, where 20%-30% would be considered a minimum.
The good news is that home prices in much of Europe, especially properties for sale in Spain, Italy and Cyprus are much lower than their UK counterparts meaning that it’s easier to put up a larger deposit. At the same time, however, UK buyers can feel, rightfully, nervous about currency fluctuations putting a dent in their deposit. These may be (and indeed) often are, temporary, but that’s of very little consolation when you need your money on a specific date for a deposit.
One way to avoid this situation is to agree a forward currency contract, which basically means that you and a currency broker agree that you will buy a certain amount of currency for an agreed price at a certain point in time, usually within 2 years. For private buyers, a deposit of 10% or so is likely to be required. If you are going down this route, please note that it is a fixed contract, i.e. both parties are committed to fulfilling it regardless of what happens with exchange rates. Hence, you may find that you would have benefited from better rates had you waited. The point of such contracts, however, is to eliminate uncertainty.
Arrange your mortgage
This is where life can get particularly challenging, so it’s very important to look at all the options carefully before deciding which the right one for you is. You basically have three choices:
Get a UK mortgage for your foreign property. This gives you the advantage of dealing with the UK banking system and FCA protection, the problem is that UK banks are increasingly wary of lending on property outside the UK and hence you are likely to find a limited range of options, if any.
Remortgage your UK property – This keeps you within the UK banking system, but you will need to think carefully about the impact of currency fluctuations. For example if you are planning on renting out the property to cover your mortgage costs, you would be well advised to give yourself plenty of room to accommodate currency movements.
Take out a foreign mortgage – This can eliminate issues with currency fluctuations but may be increasingly challenging in a post-Article-50 world and leaves you dealing with an unfamiliar banking system.
One final point – You’ll probably have noted that the topic of currency fluctuations has featured pretty strongly in this article. Whatever else you do, make sure that you always get the best possible exchange rates for any transaction, which is probably going to mean shopping around dedicated exchange services rather than just going to your bank.
For more information or to browse a range of property investments throughout Europe, please contact Hopwood House.