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A Case In The Sun?

24/04/2007

The interest in buying a property overseas has never been greater. Fuelled by aspirational television programmes, more and more people from the Midlands set off on their annual holidays with half an eye on buying property abroad.

Keith Dudley, head of private client law at Birmingham and London law firm Martineau Johnson, highlights some of the reasons for this growing trend.

“People are driven by the promise of investment returns, whether through rental income, the ultimate growth in the value of the property or simply by the prospect of enjoying the lifestyle overseas, whether for holidays or retirement” he said.

“Whatever the rationale, however, buyers have to be careful about the way they go about making the purchase”.

Mr Dudley has identified ten tips for prospective buyers, in principle, urging them to keep a cool head and not be swayed by the sunshine and sangria that can affect usually discerning purchasers.

“Sometimes clients come to me without having undertaken the necessary research. When buying in the UK, people often seem to be more cautious, a paradox as the law can be more straightforward here.

“For example, those buying in Northern Cyprus should be aware that if there were ever to be a reunification of Cyprus under Greek rule, their title may not be legitimate.”

Mary Kaye, a family law partner at Martineau Johnson, points out those overseas properties can bring problems in the event of a divorce or the break up of a long-term relationship.

“By living or working overseas, you can establish a connection with that country such that break ups have to be resolved under the law of that country, at least in respect of property there. Often such laws are quite different to those in the UK”, she said.

“For example, by getting his divorce dealt with in South Africa, Earl Spencer was able to obtain a better settlement than would have been possible in the UK.

“In some European countries like France, there are at least guidelines as to which jurisdiction applies but in many like Croatia, for example, you may be subjected to the vagaries of Croatian law if the worst happens.

“Couples should always take advice when setting up a home overseas”.

Ten tips for buyers

• Location and description

Do your research. For example, property values and rental prospects can be affected by proximity to airports where there are low cost flights.

• Renovation or new?

Make your choice. Improvement can be a headache but with new properties, you can have expensive fitting out costs. A new property can come without domestic appliances or internal lights and curtains, and furnishings can be expensive.

• Running costs

Avoid properties that are too big. Larger houses and swimming pools can be expensive to run and there may be service charges payable by owners of apartments and houses on development complexes.

• Rents

If you are going to depend on rental income to pay the mortgage loan and meet the costs, check the rents you can get in the area. Make sure you comply with any local property rental licensing laws or regulations.

• Use an independent lawyer

Choose a lawyer independent of the vendor or the developer. You normally need a local lawyer as well as a UK-based one. Solicitors will cover searches, planning permission and will also ensure that there are no debts that have been charged on the property. For off-plan purchases, check the safeguards if the development stalls.

• Taxes

Plan for taxes; whether they are ‘stamp duty-like' taxes charged when the property changes hands, annual council taxes or those linked to wealth and inheritance.

• Inheritance

It is usually safer to make a will in the country of your overseas property as well as the UK. Otherwise, at best, your estate or family could find unacceptable delays and at worst, your wishes may not be followed. Inheritance tax exemptions when property passes between husband and wife may not apply in the country where you buy.

• Finance

Consider financing options. Local mortgage loans can take a long time to arrange and it can be better to borrow from your UK bank in the currency of the country where your new property is.

• Insurance

This is vital, especially as you may have tenants or the house may be unoccupied for periods of time.

• Currency

Plan the transfer of currency from the UK. You can use banks or specialist foreign exchange firms and the costs and exchange rates vary.

For further information please contact Keith Dudley on keith.dudley@martjohn.com