The number of Britons owning properties abroad has increased by 85% in the last decade. 750,000 have homes in Spain alone - and half a million more in France. Here are a few pointers to consider if you are thinking about joining them.
Ten steps to buying and protecting your holiday home
Buying a foreign home is, unfortunately, rarely straightforward, but these tips will help you navigate some of the biggest challenges you may face:
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Use qualified professionals to help you make the purchase. You can find details of good agents through the Federation of Overseas property Developers, Agents and Consultants (FOPDAC). Visit www.fopdac.com.
- Get your mortgage agreed in principle before you go shopping. That way when you do find your ideal home you can move on it immediately.
- Remortgaging the main home in Britain is a popular way of financing a foreign home purchase. However, it could be worth considering a mortgage in the local currency. This avoids exchange rate risk and, as some local banks offer fixed rate mortgages for very long periods (e.g. 25 years in France), it can help reduce financial risk.
- Do your homework, and take your time before you commit! Make sure you see a good range of properties. Try to view the area at different times of the year and check for possible changes or developments to the area.
- Beware of expensive additional fees and taxes. These vary in different countries and can be up to 20% in Italy and Spain. Buying abroad can take longer than buying in the UK so factor that into your costs and build in contingency.
- Make sure your lawyer speaks good English. You need someone who can explain any complicated legal quirks and local regulations.
- Be wary of estate agents promising guaranteed rental yields or capital growth. Never rely on such promises to finance your purchase and read the small print.
- Consider local inheritance laws. Ask your lawyer how this will affect you and your family, and make an additional will to complement your UK one if necessary.
- Insure your property adequately. If you’re not familiar with the local language choose an insurer that can provide you with a policy and claims support in English.
- Transferring home purchase money abroad can be expensive. Compare the currency transfer specialists with your bank to ensure you don’t pay over the top in fees.
Insuring your dream home
Once you’ve found your dream property it’s crucial that you get it properly covered. Without the right insurance policy, you could have problems when you come to claim and find out you don’t have the cover you thought.
What do you need to consider?
Wherever you choose to buy your holiday home, and you’re not going to live there full time you need to know it’s properly protected. Having the right insurance is all about understanding what is and isn’t covered. Local insurance policies can include variations and exclusions relating to burglary, accidental damage or personal liability claims.
In Spain, for example, natural events such as storms, floods or earthquakes are covered by a state-backed insurance pool, but the cover is restricted and you could end up footing a large part of a claim yourself.
Some cover can leave you seriously out of pocket - Italian policies normally only pay half the sum insured in case of earthquake damage; or theft cover which is restricted when the property is left unoccupied - in France this applies after 90 consecutive days.
Check that what you assume to be covered actually is. Don’t assume that what is covered under your UK home insurance will automatically be covered abroad.
What level of cover do you need for your holiday home? For buildings insurance, the sum insured should be sufficient to rebuild all buildings as well as all outdoor structures. This is often quite different to the price you have paid for the property. Get professional advice.
Selecting the market value as your sum insured may lead to underinsurance - in which case you will be penalised if a claim occurs - or to over insurance, where you will pay unnecessary premiums. Check your policy to decide if you need to add an amount to pay for any professional fees.
Insure the contents for their replacement value as new - not the value you paid for them or their second-hand value.
Should you protect yourself against being sued?
Most policies provide liability cover to protect you as owner of the holiday home if someone is accidentally injured. However, if you rent out your property, or if you employ domestic staff, check that you have cover in place should an employee or a guest be injured.