Pitfalls of Buying Property Overseas & How To Avoid Them
Buying property abroad can be an exciting opportunity, but it comes with its fair share of complexities. To help you navigate the process and avoid the pitfalls of buying property overseas, we’ve highlighted some key issues to watch out for. By staying informed and prepared, you’ll save time, money, and unnecessary stress.
1. Contracts: Don’t Sign Without Expert Advice
Signing a property contract without having it thoroughly reviewed is one of the most significant mistakes international buyers can make. These contracts often include strict deadlines, and missing them could result in losing your deposit. Here are the key points to check in your contract:
Mortgage Application Deadline
Most contracts require you to submit a mortgage application within 14 days. Missing this deadline puts you in default.
Mortgage Offer Deadline
The contract should allow enough time (typically 45–60 days) for your mortgage to be approved. Some banks may require up to 90 days, so it’s crucial to confirm the timing.
Specific Mortgage Details
To protect yourself, ensure the contract specifies that your purchase is subject to securing a mortgage. Include the following details:
- The name of the bank
- The mortgage amount
- The term of the loan
- The interest rate
Ensure Accurate Mortgage Terms
Some purchase agreements will include a maximum amount of mortgage that you’re applying for, instead of the minimum. We don’t understand why some Notaries think that this is the right way around, but it’s important that the contract confirms the minimum that you can accept to be able to proceed with the purchase.
Required to Apply to Multiple Banks
Ensure that you’re only required to apply to one bank, not multiple lenders. For international buyers, there may sometimes be only one bank able to lend to you depending on your individual circumstances.
GFA Requirement for New-Builds
If you’re buying a new-build property in France, then banks can only issue the mortgage offer after they’ve received a copy of the Garantie Financière d’Achèvement (Financial Guarantee of Completion) or GFA. If the time it takes for the developer to secure the GFA takes you beyond the Mortgage Offer Deadline, then you can be in a difficult position. It’s sensible to include a clause in the contract that covers this eventuality, to protect your deposit.
2. Ownership Structure: Name vs. Company
When buying property abroad, you’ll need to decide whether to purchase in your own name or through a company. Buying in your name may mean paying income tax and capital gains tax (CGT) in both your home country and the country where the property is located. However, purchasing through a company established in the property’s country typically limits tax obligations to that country, providing potential tax advantages.
To help you make an informed decision, we can introduce you to our network of trusted professionals who specialise in ownership structures and tax planning. It’s always important to seek independent legal and tax advice.
3. Wealth Tax: Planning Ahead
Wealth tax can be an unexpected cost for property owners in certain countries. One effective way to reduce liability is by financing the property with a mortgage rather than paying in full. However, be aware that equity release (borrowing against your property’s value) will not lower your wealth tax liability, and can’t also be done in some countries.
For more details on wealth tax, you can explore our dedicated guides:
4. Foreign Exchange: Avoid Bank Fees
A common oversight many buyers make isn’t related to the property itself but to how they transfer their funds. Using high-street or private banks for foreign exchange can result in hidden fees and high margins.
By working with a specialist foreign exchange provider, you could save 3–4% on the exchange rate, translating to thousands of pounds or euros. Additionally, foreign exchange specialists allow you to fix exchange rates for up to 24 months and time your transfers to take advantage of favourable rates.
We’ve partnered with the largest Foreign Exchange Specialist in Europe, and by contacting us, we can introduce you to them.
For more information, you can explore our Foreign Exchange Guide.
5. Seek Independent Advice and Get the Right Support
Every property transaction is unique, and the rules, taxes, and processes vary from country to country. Seeking independent legal and tax advice from professionals with local expertise is crucial. Our network of trusted professionals can provide you with the guidance you need, offering tailored advice to help you navigate the complexities of international property purchases.
By working with our experts, you’ll gain peace of mind and avoid costly mistakes, ensuring a smoother process from start to finish.
If you have any questions or need further guidance, feel free to get in touch with us.
Disclaimer: This article is for informational purposes only and should not be considered legal or tax advice. Always consult a professional before making financial decisions.
