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Guide to Buying a Holiday Home Abroad
If you’ve settled on buying a holiday home abroad, you’ll likely have many questions.
There’s a lot to think about when buying a property abroad. Of course, the location and property type are essential, but there are local rules and regulations to consider too. For instance, some countries might restrict the property type an overseas buyer can purchase.
Then there are the risks associated with owning a home abroad, and having sufficient insurance can mitigate against these.
In this guide, we’ll do our best to answer some of the key topics surrounding fees, research, and mortgages, so you’re better informed about choosing a property.
In this guide, we’ll cover:
- What to consider before looking for your holiday home
- How to find a holiday home abroad
- How to get a mortgage for overseas property
- The cost of buying a holiday home abroad
- Benefits of buying a property overseas
- Key considerations before you purchase your holiday home
Researching buying a property abroad
Researching where to buy a holiday home typically involves far more than finding beautiful neighbourhoods and nearby amenities.
For instance, it’s best practice to investigate the kind of properties that are most common in the area you are targeting. In doing so, you will find out how sales prices differ according to the type of property. What’s available may shape your decision on the locations you consider. But you’ll also have more clarity on what properties are most appealing to you and holidaymakers. Is it a chalet in a winter wonderland? Or perhaps, a villa with a pool by the sea? You’ll be better equipped to narrow your search parameters by fixating on a particular property.
Further considerations for drafting a shortlist might include:
- The likelihood of natural disasters – earthquakes, floods, and storms can damage your property, inflate insurance premiums and cause significant inconvenience.
- Rental yields – if you’re planning to rent out your property, many lenders may require that you generate 145% of your mortgage repayments annually1. You can get a rental property yield estimate from a rental agent.
- Regulations and laws – some countries have restrictions for foreign buyers. In others, you will need specialist documentation. To buy a house in Italy for instance, you will have to apply for a Codice Fiscale. This is your tax number or identification code and is equivalent to the national insurance number in the UK.
Finding an overseas property
There are many helpful resources to use when narrowing your search for property overseas. You may also want to lean on local property experts, such as real estate agents, who can do all the proverbial heavy lifting—just be mindful that they might charge a fee.
Online property websites
Run a quick Google search, and you’ll quickly identify websites that specialise in property listings abroad. When in doubt, it’s also worthwhile asking friends and family for recommendations, especially if they have purchased property in your desired area.
You can also turn to forums for advice, speaking to people who have already bought a property in your research location. They can give you first-hand experiences about the current market and available properties.
In addition, it’s a good idea to seek out customer reviews to find unbiased opinions about local services.
Local real estate agents
Once you’ve made a few enquiries and thoroughly familiarised with the local housing market, it’s worthwhile seeking support from a local real estate company. They will have feet on the ground and more intimate knowledge of what’s available—not to mention information about local areas and amenities. ‘On-site’ real estate agents are also familiar with the rules around purchasing a property as an overseas buyer.
Settled on a property? You will need to prepare various documents for your mortgage application and prepare a structural investigation—many local agents can refer you to reputable organisations for further help.
Housing developers
Some of the latest properties on the market may not yet be listed on local websites or feature in regional real estate offices. That’s because new build housing is typically snapped up quickly, especially if it’s in an in-demand area or built by a respected developer.
You may even identify a prime area of land owned by a development company, on which you can commission the construction of the property of your dreams. So, it’s worth getting in touch with development companies to ask about any plots they have available.
Legal investigations
Once you have identified your dream property, it’s time to undertake legal and structural investigations to uncover potential hidden issues. A sale can’t go through until the necessary checks are complete. Therefore, you may consider appointing a specialist UK-based solicitor and surveying company to conduct legal investigations. Alternatively, you may be able to find reputable, local, English-speaking businesses.
Securing an overseas mortgage
The mortgage you secure will depend on how the property is used. For instance, if you wish to rent your property to holidaymakers on a short-term basis (days and weeks), you will need a holiday let mortgage. Longer-term rentals require a residential buy-to-let mortgage, suitable for tenants staying 6-12 months.
To arrange a mortgage outside of the UK, you may be expected to pay a higher deposit than for a UK property. And the costs of an overseas mortgage will vary from country to country.
The value of your deposit will depend on several factors, including the lender, your finances, and the amount borrowed. Put down a larger deposit, and you’ll likely receive more favourable mortgage terms and interest rates.
It is important to note that the FCA does not regulate property transactions outside the UK. This means that you may prefer to use a UK-based broker that understands the local market and can minimise risks.
Costs of buying a property abroad
There are several costs to bear in mind when buying a property abroad, including:
- Mortgage fees – including broker, arrangement, and administration fees.
- Surveyor fees – you will need to pay for a chartered surveyor to review the property.
- International bank transfer fees – don’t forget to factor in these costs.
- Legal fees – can include making a will, which is mandatory in some countries.
- Tax adviser fees – fees for an independent tax adviser.
- Local property taxes – which may include income tax.
- Exchange rate fluctuations – this will affect the initial cost of the home and the mortgage repayments.
- Holiday home insurance – you’ll want a policy that can protect your property from potential risks.
Key considerations before buying a property abroad
There are a host of additional factors to be mindful of when buying a second property, including:
The impact of Brexit
The cost of living in EU countries has increased since the UK left the European Union2, leaving a significant impact on how long UK citizens can stay there. Also, UK citizens are restricted to 90 days at any one time during a 180-day period. This is enforced by passport stamping on entry and exit. Holiday homeowners that stay for extended periods and aim to visit their property for several months of the year should be careful to stay within the rules, or risk future freedoms. Be mindful too that while many tax rules remain unchanged, some EU states have altered their rates for UK citizens. For more information, read our guide on buying a holiday home after Brexit.
Finding the right property management
As Brexit limits your freedom of movement, you won’t always be there to watch over a second property abroad. This means you may require a trusted individual or management company to ensure your property is safe. Dedicated property managers can visit your home regularly to check everything is running smoothly, and no disasters have arisen.
Property managers can also facilitate rental agreements if you wish to welcome paying guests. They ensure your home is fit to house holidaymakers and act as the keyholders for when you’re away from the country.
Unoccupancy period for your insurance policy
One of the benefits of insuring your holiday home with Intasure is that, under our policy, your second home can be protected whether you’re there or not.
Benefits of buying a property abroad
There are many benefits of buying a property abroad, including:
- Prices are often cheaper than in the UK – particularly if you find a hidden gem off the beaten track.
- Source of income – holiday homes are attractive to holidaymakers that want to rent your property on a short-term basis.
- Long term investment – holiday homes can be a long-term investment, and you can fetch a healthy return on investment when it’s time to sell.
- Holidays – second homes present a ready-made holiday whenever you need a break..
If you have any further questions, feel free to get in touch with our dedicated UK-based and English-speaking customer service team on 0345 111 0680 to learn more about our holiday home abroad insurance, or get a quote below.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited trading as Intasure accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.
Links
1 buy-to-let-mortgage-calculator
2 Brexit makes cost of living crisis worse as exports to EU to UK plunge