Abodes Abroad

Many dream of retiring abroad and enjoying a gently-does-it pace of life. Laura Henderson offers some pointers on finding your perfect property

Give Your Dream Home The Twice Over

Impulse purchases rarely make sound investments; so, if you have a pleasant tingling in your bones about a place, put it to the test. That beachfront villa may look irresistible when the sun’s out, but will it be quite as alluring in the depths of winter? In many countries there’s a vast difference in accessibility (flights, train schedules), climate (leaden skies or tropical storms) and open amenities (many businesses and facilities shut down during the quieter months). So, make a point of visiting the region in the high season and also during the off-peak months.  

Whirlwind inspection trips organised by developers or agents can be a good introduction to an area (you might even get a free stay out of it), but wine-dine-and-sign-on-the-line tours should only ever be for testing the investment waters. For subsequent visits, set your own agenda. Get a feel for what makes the region tick and what attractions will keep you coming back for more. 

Tour developments you like again without a sales chaperone chattering in your ear – better still, drop in without an appointment to see what’s really going on behind the scenes. Take time too, to view a range of other properties with local agents and compare neighbourhoods and price points. Before you leave, get an ‘insider view’ from other UK owners. Having a good nose around is essential before buying any property. If your love-at-first sight purchase is meant to be – due diligence won’t stand in your way.

Do The Six-Point Diligence Drill

There’s something quaintly reassuring about the Herculean mound of paperwork that comes with buying property at home, from land registry checks and structural surveys to sorting finance and buildings insurance. Why some buyers throw caution to the wind when buying 1,000s of miles away, therefore remains a mystery. In fact, making a buy-wise purchase in foreign climes isn’t as complex as it may first appear, provided you stick to a few basic rules:

• Look at the bigger picture – research macro factors such as a country’s political and economic situation. Investigate tourism statistics, stability of currency, as well as property growth trends and the government’s stance on foreign ownership. Go to www.fco.gov.uk and www.fopdac.com for up-to-date location profiles.  

• Fine tune your finances – if you’re arranging finance on a property, ensure that this is clearly stated in any contract. Where possible, seek an ‘opt-out-clause’ if the loan is not agreed. This will ensure any deposit paid is refunded. 

• Know your legal rights – some emerging markets offer limited protection to overseas buyers, so find out what restrictions are put on foreign property holders, including the maximum length of stay, visa requirements and what appropriation rights the government holds in the region. Where do you stand if the developer or vendor fails to deliver on what they’ve promised? What is the dispute resolution process? 

• Appoint an independent solicitor – choose someone located in the country you’re buying who can represent you throughout your purchase. They shouldn’t have anything to do with the property or the developer and must be proficient in property transactions with foreigners. The Law Society and the British Consulate can supply names of country-specific solicitors. 

• Check the title deeds – it’s essential to verify that the home you’re purchasing has clean title i.e. that ownership is undisputed, boundaries are clearly delineated, and that you won’t inherit any debt. Check the planning status of new build property. Does the developer have full title to the land or property? If you’re intending to carry out restoration or extension work on an older property, now is also the time to check that this is allowable and to apply for permission.  

• Tackle the tax system – find out if your country of purchase has a tax treaty with the UK to ensure you’re not taxed twice on any income. The UK, for example, has a double taxation treaty with France and Italy. Some places have a ‘two-tier’ tax system where rates paid by locals are substantially less than those paid by foreigners - so make sure you’re analysing the cash flow based on the latter. It’s also important to find out if you’ll be liable for capital gains and inheritance tax when you come to sell. Inheritance laws are often far less flexible than in the UK, so if you live or hold substantial assets abroad, it’s worth having a local will drawn up.  

Make Your Bolthole Pay Its Way

If you’re only planning to spend part of the year overseas and have a bolthole back at home, it makes sense to get some rental mileage out of it, to help pay towards its upkeep. Certain countries impose restrictions on short-term lets to protect their own full-time residents – the States is a case in point. Likewise in Spain, you need to register and seek permission from the local authority if you want to rent your home.

Rental income generated on a second home abroad is subject to UK income tax based on your marginal rate. You can, however, claim for certain expenses and thereby reduce your tax liability. Typically, these will include repairs, utility bills, rates, insurance and letting administration costs. If you have a second home mortgage, you can also claim relief against the interest paid on the loan. 

Get Clued Up On Currencies

Fluctuations in the exchange rate can significantly affect the sterling price of your overseas home, which makes finding the best exchange rate and methods of transfer a top priority. Many buyers avoid playing currency roulette by either tapping into existing savings or taking out a second mortgage on their UK residence. This is by far the cheapest and easiest way if you have equity in your current home, as long as you bear in mind currency conversion costs, as large deposits (on average 10% of the property value) are required on foreign property purchases.

Those changing pounds to foreign currency have two main options open to them:  teaming up with either a high-street bank or a foreign exchange specialist such as www.currenciesdirect.com, www.hifx.co.uk or www.caxtonfx.com. Specialist brokers invariably offer a better deal: more competitive rates, lower (if any) transfer fees and no commission charges. Because they solely deal in foreign exchange, you’ll also benefit from a number of exchange perks that most banks are unable to offer: 

Choosing the right company can be made easier by drawing up a basic check-list taking into account service levels, country-specific expertise and best combination of rates. It’s also wise to request a personally signed dealer. If there’s a rate that you desire, your broker will ensure that the rate is ‘booked’ when it’s achieved. Brokers’ abilities to access ‘live’ exchange rates means that they should be able to undercut banks, which work to built-in margins. That said, if you’re a long-standing customer with one of the major high-street names, you’ve nothing to lose by putting in a call to see what’s on offer.

Plan Your Exit Strategy

It seems strange to think about selling up even before you’ve settled into your new home-from-home – but savvy buyers always plan their exit strategy, their “back door”. They size up their target audience and work with a realistic ‘sell-up’ time frame in mind. To get a feel for how buoyant your local resale market is, count the number of distinct buyer groups. If you’ve three or more, including local, national, and overseas, you’ve got a healthy base to work from. If one or more of these investor pools dries up, you’ll still have plenty of ‘potentials’ left in reserve. Most selling up problems tend to occur where a location is overly reliant on one single investment stream.

To ensure a well-conceived exit strategy – make sure what you buy has something over and above the competition. Choose a prime location with protected natural or historical assets where development is restricted, a rural spot perhaps that’s benefiting from reverse migration, where locals are moving back for a better quality of life. Look to an area’s future too, before committing to any purchase. Transport access, tour operator presence and rental zone changes can all dramatically affect the resale value of a property, taking an area from boom to bust or vice versa, so research historical price trends (from the Land Registry or National Statistics Offices) and pinpoint where buyer demand will come from. Think of it as working in reverse – then you can enjoy your sun-kissed golden years with complete peace of mind.