Buying abroad as an investment

Buying abroad is a popular option for Britons, and France and Spain remain top of the list. On further shores, Florida is favourite.

To finance the exotic lifestyle, most people who have a decent amount of equity in their home choose to remortgage. This keeps people on familiar territory and saves concerns about currency fluctuations. Of course, there is an element of risk if you overreach yourself.

There is a two-year tracker remortgage deal available at Halifax at 0.16% below base rate. This makes the current rate 5.59%, but it comes with a sizeable fee of £999. Woolwich has a two-year fix at 5.89% with a fee of £995.

An alternative option is to take out a mortgage in euros. This service is offered on French and Spanish properties by Halifax, Barclays, Abbey and Norwich & Peterborough.

Mortgages from banks in the Eurozone can be cheaper than in the UK. In France, a variable rate mortgage comes at around 4%, and 4.4% for a five-year fixed. Spain is a bit more expensive at around 5% on a variable rate and 6% on fixed rates. Lenders in Europe also usually want a hefty deposit of around 20 to 30%. In the United States dollar interest rates are higher at around 8%, but deposits are usually lower at 10%.

Lenders take into account your income rather than the prospective rental income when checking your viability of covering the repayments for the mortgage.

The costs associated with buying a property are generally higher abroad than they are at home. In Spain, legal fees, land registry, transfer taxes and VAT will all add around 10% to the price of a property. If you’re looking at an off-plan property, check whether VAT is included in the sale price. Another crucial point is to check that the developer really owns the land, as parts of Spain have had problems with land grab, mainly in the regions of Valencia and Andalucia.

In France, you should allow for a staggering 24% for costs in addition to you purchase price for new properties, to include fees and taxes. VAT at 19.6% makes up the lion’s share of the problem. There is a way to escape VAT, and that is by using a leaseback scheme, in which you let the property back to the developer for some months each year for 20 years, but if you sell within that time, some VAT will become payable again. Older properties in France will have fees of about 9%.

In Florida, fees and taxes come to around 6% of the purchase price, whether the property is new or old. American conveyancing is fairly close to the English system and has the advantage of being in English. Following on from the sub-prime and property crisis in the US, Florida prices are around 40% cheaper than at the start of 2006. If you think the market has gone as low as it can, you might find a bargain.

Income from any property abroad will be subject to English taxation if you bring the money home, and tax in the country of the property too.

European destinations such as Spain, France, Italy and Portugal remain positive favourites with Brits, along with those in the US, but now many more exotic locations are attracting British buyers.

Garry Pierrepont of International Property Purchases says: “We’re seeing a great deal of interest in far flung locations. It seems that people are trying ever more adventurous destinations in the hope of finding a bargain, and indeed, there are plenty of places where property prices are very cheap. However, everyone should do their homework before buying – it’s still a lot of money.”

Cape Verde - islands off the west coast of Africa, and Morocco, are increasing in popularity. Places such as Brazil, Thailand, Bali and Dubai all create difficulties for foreigners owning property. You may have to buy with a local resident as your partner, and in Dubai, the most popular exotic location for buyers, you often can’t buy the freehold.

Here are some other possibilities.

• BULGARIA - it’s been over-hyped, building quality can be shoddy and the infrastructure is poor. There has been too much development on the Black Sea coast.
• EGYPT – you can buy a seafront villa for as little as £25,000, but the threat of terrorism is a worry.
• CZECH REPUBLIC – a popular Eastern European location that has been westernised. There’s still a lot of value to be found.
• THAILAND - the unstable political situation can lead to currency trading being suspended, and you could lose your house.
• TURKEY - you cannot buy land, so you have to form a company locally to buy a house, although you can own an apartment in your own name.
• ROMANIA – it’s a long way behind much of the rest of Eastern Europe, but if you want a gamble for not much money, you could make it here.