How to avoid the pitfalls involved in overseas mortgages

Overseas mortgages, the pitfalls and how to avoid them - 2nd October 2007

There is seemingly no slow down in people’s desires buy property abroad. This is not only true for UK nationals, many others on the European mainland are taking advantage of low interest and exchange rates against the Euro, and investing their money overseas, especially so it seems, in the American market. Indeed, with the relatively low Euro mortgage rates available, US citizens are themselves looking to Europe for the latest best buys.

Buying overseas shouldn’t be entered into too lightly. Many people have found their dreams have quickly turned into nightmares, simply due to not following advice that would be a normal process if buying in their own domestic markets.

There are certain aspects of buying abroad which people should always consider before parting with any money or signing on the dotted line. A common mistake is that people assume that buying a property abroad will be the same as buying at home. Property law and mortgages are different, and there are invariably differences in practices, customs and local regulations too.

Potential pitfalls
Most problems happen when papers are signed on a whim, or properties are bought sight unseen – it’s unlikely that this would be seen as a prudent approach if buying a property in home markets, so makes little sense to do this abroad.

Taking out a loan on the on the property in the destination country, is a more sensible approach to house purchase, rather than in cash, as the latter approach runs the risk of losing everything if a lender isn’t involved. The major advantage to arranging an overseas mortgage is that the lender will arrange a valuation and carry out essential checks.

It cannot be stressed highly enough to seek independent advice from an overseas solicitor for a number of reasons. A local solicitor will examine all documentation thoroughly, which may well not be in English or the buyer’s native language. The solicitor will ensure legal title to the property exists, establishing that the seller has the legal right to sell the property, and establish if there are any legal or financial burdens registered against the property for which the buyer would be responsible. If the property is new or off plan, the solicitor will establish liability or redress should the developer be unable to deliver the property.

It is also always important to ensure that an independent valuation is carried out, and this applies especially to re-sale property, regardless of age. A valuation should point out any issues with the property, e.g. subsidence, damp, wiring etc. and most importantly, any valuation should point out potential boundary disputes.

Increasingly, people are deciding that the safest option is to leave the hard work to independent overseas mortgage brokers, such as Conti Financial Services Ltd. Simon Conn, MD of Conti says, “There are numerous potential pitfalls attached to buying properties abroad, and people are still risking substantial amounts of money without good reason. Although unfortunate experiences still happen, arranging an overseas loan through a local institution goes a long way to eliminate the chances of throwing away hard earned cash.”

Ten tips for buying abroad

Always have a `cooling off` period – never be tempted to put down a deposit there and then on a ‘must have’ property.
Never sign a contract that you do not fully understand
Always seek independent advice from professionals, who are proficient in the country's laws and processes and know the specifics involved in buying a property.
Ensure an independent valuation is carried out.
If you are arranging finance on the property, ensure that this is stated in any contract and you have an ‘opt-out clause’ if the loan is not agreed (which will ensure any deposit paid is refunded).
Ensure there is no outstanding debt on the property.
Arrange mortgage finance ‘in principle’ where possible, before agreeing to purchase the property, or signing contracts and paying over a deposit.
Check with the estate agent or vendor regarding the costs charged by the legal and government authorities for purchasing a property. Costs do not end at the asking price, lawyer's fees, taxes, insurance etc must all be met.
Open a bank account in the destination country - a Certificate of Importation will be needed for money brought in from the UK, for example.
Set up standing orders in a local bank account to meet bills and taxes. Failure to pay taxes in some countries, such as France, Portugal and Spain, could lead to court action and possible seizure of the property.