A selection of frequently asked overseas finance questions and expert answers
For nearly 40 years we’ve been helping people finance their overseas property purchases, and during that time we’ve answered thousands of their questions on this topic and assisted them in avoiding problems that could negatively impact their final decisions.
You may be looking at investing in residential and/or commercial overseas property right now. If so, here are a collection of some of the most common and important questions and answers that we can provide to help you to be successful and to navigate around some potentially difficult areas.
Also, if you would like to suggest any additional questions and answers that you think would be helpful for anyone visiting this page, it would be great to hear from you. Please get in touch with your suggestions and feedback.
I am considering purchasing a property in Spain or France. What costs am I likely to incur on top of the normal purchase price?
In France, expect to add approximately 10-12% of the purchase price. In Spain, expect to add approximately 12-16% of the purchase price.
These costs cover government taxes and legal costs, but we strongly advise you to check with an independent lawyer in each country to get a full breakdown of what should be expected. Please note that arranging a mortgage on the property can also increase some of the above costs.
I’m looking to purchase abroad and raising a mortgage on the property. As well as the deposit and the cost of borrowing, what other costs should I be expecting?
You should check with your local independent lawyer to establish the potential other costs that could be required as these do vary from country to country. But as an example, in France, you should allow for 10% to 12% of the purchase price to cover government taxes and legal costs, while in Spain this could be higher – up to between 12% and 16%.
These costs can sometimes be higher because there are higher taxes/legal costs when arranging a mortgage to enable a lender to take the relevant property as security.
If I’m purchasing a property in Europe, would a lender consider an application if I have adverse credit?
It is doubtful, as lenders in Europe are very concerned with applicants who have any sort of bad credit issue. They are unlikely to consider an application even if you have only had one missed payment or a County Court Judgment.
If you are concerned, it may be beneficial to apply for your own personal credit report from a credit agency such as Experian www.experian.co.uk or Equifax www.equifax.co.uk before applying for a mortgage.
As a UK applicant, will it be more difficult to get a mortgage in, for example, France, Italy, Portugal or Spain post-Brexit?
At this time, there are no indications that lenders will penalise a British applicant post-Brexit. For example, they do not currently offer different lending terms to Norwegians or Swiss-based applicants who are already residing outside of the EU.
Building & Financing an Overseas Property Build
I am thinking of building a property abroad. What do I need to initially consider regarding possible financing and the purchase/build?
The number of people who want to build their own home overseas is on the increase.
Firstly, check with an independent lawyer and surveyor regarding the ownership of the land and legalities of building there.
Secondly, the land needs to be purchased and registered in your name – it is unlikely lenders will assist towards the cost of the land, so ensure you have the financial resources to cover this stage of the process.
Thirdly, you then have to arrange for the full planning permission and building/habitation licenses to be granted (and cover the cost of these being approved from your own resources), noting that lenders prefer that any works carried out are undertaken by a local builder.
The percentage of the cost of the build that will eventually be covered by a lender will depend on a number of factors, including the overall expense of the whole project, the value after the works have been completed and your total personal financial position – taking into account both the new and any existing personal debt.
I am thinking of building a property overseas. Is it easy to raise the finance on the land, or will a bank only assist with the construction costs?
Normally, a lender will require you to purchase the land from your own resources, then obtain all the relevant planning permissions and building/habitation licenses required before they will consider assisting with the cost of constructing the property.
Some lenders will offer up to 100% of the construction costs, while others will consider a percentage of the final valuation after the property has been constructed.
You should also take into account that lenders prefer a locally-based registered architect or builder to be involved in the construction, rather than using overseas companies.
Buy-to-Let Financing Overseas
I am thinking of purchasing a buy-to-let property abroad. Can the rental income be taken into account when calculating how much I can borrow?
In most instances, the answer is no. Rental income cannot be used as part of the mortgage calculation.
Lenders will only consider earned, pension and in some cases, investment type income. If you are going to rent a property, please also check on the local rules for that country, what is permitted and whether any local licenses are required.
Completing an Overseas Property Purchase
I need to complete on a property purchase in France as soon as possible but do not want to get caught out. What guidance can you give me?
There are conditions and cooling off periods when you sign a sales contract and if you are applying for a mortgage there are additional cooling off periods. These, combined with the legal process, could result in you exceeding the date of completion, so you need to be careful.
In France, you should allow at least 6-10 weeks to complete on a property and if you are applying for a mortgage, this could further delay the process if the lender is waiting for support documentation, valuation reports and a subsequent mortgage offer.
Timescales in other countries can vary and it is advisable to check with your independent lawyer regarding any other complications they envisage before you commit to signing any sales contract. Do your homework first!
We're completing on an overseas property purchase and we have received two versions of the contract. One in the local language and one in the language we can understand. Can we trust the one in our language?
When buying a property abroad, you may receive one contract just in the local language, or two contracts – one in the local language and one in your own language.
‘Lost in translation’ is a term we are all familiar with, but when it comes to contracts for an overseas property, you could be at risk of experiencing its full impact. In many cases, it has eventually come to light that the translation is not a true version of the original. In other cases, people have not bothered to have the contract translated at all.
If you have been provided with a translated version of the contract, you need to ensure that it does not contain errors, omissions or extras. One simple check is to see if it has the same number of paragraphs as the original. If not, there is almost certainly a problem.
The safest option is to check with your independent lawyer or a professional translator. They can verify that the translation is a true version of the original.
Otherwise, you could unwittingly be agreeing to extra conditions or secured/unsecured charges not covered or applicable under the original contract.
How long can I take to sign the contracts and complete a property purchase?
In some countries, conditions are set at the time you sign a sales contract, which means you must either pay certain amounts of money at set times OR complete the transaction within a defined period. Time constraints may be set due to national laws rather than a developer’s or agent’s timeframe.
In France, for example, once you sign a sales contract and confirm the completion date, you could lose your deposit if you fail to meet that defined date.
Some of the conditions set are unreasonable and do not take into account delays which are beyond your control. For example, if the property is still being built, there may be construction delays, or if you are applying for a mortgage to purchase the property, you may encounter financial or valuation difficulties.
Calculate the timescales you personally need to work to, especially with regard to cash flow and finance which may need to be arranged. If a developer/agent is insisting on set times, you can research earlier work they have carried out to see if they have previously met their own deadlines.
We would also advise that your independent lawyer obtains financial references on the developer, to ensure that they have the cash resources to complete the construction of the development and to establish what compensation you would be entitled to if they do not meet the agreed timescales.
I've made an offer on a property that has been accepted but the vendor wants a deposit. What are the risks?
At the time of signing the sales contract, developers or agents may set dates when a small holding deposit or a larger stage payment is required. Quite often, they do this without providing a ‘cooling off’ period or with restricted timescales – e.g. seven days – beyond which you are unable to withdraw from the contract without losing your deposit.
Before parting with any cash, ask your independent lawyer to check the contract, in particular, the clauses which will become applicable if you decide to withdraw from the purchase.
Ask for a ‘cooling-off’ period of at least 14 days (30 would be even better). This will give you plenty of time to return to your home country and seek other professional advice before proceeding further.
Beware if you are paying for any holding deposit by credit card. Make sure that the developer or agent is not utilising your rights under the credit card laws regarding refunds to avoid any ‘cooling-off’ period they should offer.
I’m thinking of buying a property on an island. What are the pitfalls?
Many people are attracted to living on an island as they think it will be quieter. However, property prices can be higher as there is a limited supply. This can cause friction between locals and holidaymakers as they are priced out of the market.
It can sometimes be more difficult for foreign nationals to buy a property on an island as restrictions may be in place, for example in the Caribbean, and lending rules can be more restrictive in an attempt to put people off buying unless they have a higher deposit.
On the mainland you may get a higher loan to value rate and growth could be higher than on an island. Also, planning laws may be more restrictive as there is less land to build on, so do not bank on being allowed to extend your property.
Ilegally Built Properties
I've found out that the property I'm buying has been illegally built. What should I do?
Some overseas properties have been built in areas that should have been set aside for green belt or agriculture land. Others may have been constructed in areas which impinge on bird sanctuaries and military zones, or which have been illegally built too close to the coast.
Many people are unaware that their property is at risk, but it is a harsh reality. One example is in Spain, where the environmental authorities have been knocking down homes built too near the shoreline or unregistered rural land.
A possible solution is to take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer. Ideally, they should also not be located or represented in the same area as the property in question.
You can also check with similar independent professionals, such as surveyors or architects.
I've found out that the property I'm buying does not have planning permission. What should I do?
This refers to properties which have been constructed with incorrect permits, or no permits at all. In some instances, permission may have been granted as a result of corruption amongst local government or council officials.
Your independent lawyer should request paperwork to ensure that all parts of the property (including extensions, garages, swimming pools and outbuildings) have been built under the correct legislation and that plans comply with restrictions regarding height, floor space and distance from boundaries.
Please also note that rules that apply locally may not apply regionally, so your lawyer should extend their checks further than just the vicinity where the property has been built.
I've found out that the property I'm buying does not have any licences. What should I do?
This is similar to no/illegal planning permission but could have an impact on which utilities you can access, as local councils may not grant permission for the use of gas, electricity and water unless the correct licences are in place.
Additional problems can arise if your property is part of a large development or apartment block. It is possible that the developer will not register your property for the correct licences until ALL the properties in that development have been registered in each client’s name.
If purchasing a new build, establish when the whole development will be registered, so you know when the relevant licences will be issued. If the property you are buying is part of a very new development, it could be months or even years before this happens.
Problems can even be encountered if the property is a re-sale as it may be part of a yet to be finished apartment block. Your independent lawyer will hopefully be able to check this.
I'm under a lot of pressure to buy a property. What should I do?
This can often happen on ‘inspection flights’, where you are corralled by the developer or agent within a tightly controlled timetable of property visits designed to get you to sign on the dotted line whilst you are out there. The sales staff are with you “24 hours a day”, trying to persuade you to buy, without any time out to consider it properly or to take professional advice.
Try to obtain references from previous clients of the developer or agent you are dealing with to establish their past customer service record.
If you do book an ‘inspection flight’, check if there are any restrictions on movement outside the defined area or developments you are visiting. Make it clear – ideally before you fly out – that you will not be pressurised into signing any paperwork without taking independent professional advice first and that you would only consider a purchase if an acceptable ‘cooling off’ period is in place.
Mortgage Application Documents & Information
If I am self-employed, what documentation would I require to purchase a property in Western Europe?
We will be looking for at least the last three years trading accounts. These should ideally be audited by an international firm of accountants, as lenders prefer this type of practice to have verified a trading history, rather than a locally-based firm of accountants.
The company/business should have been trading for at least five years, with at least three years’ profitable accounts. You are defined as self-employed if you hold more than a 20%-25% shareholding (please note, some lenders define 20%+ as a controlling director, others 25%+).
Lenders base their calculations on your net personal income after tax and if dividends are drawn they must be seen to be on a regular annual basis and not just drawn out of the business for other capital expenditure, including purchasing the overseas property.
Any information provided should be in English, as it is a common language between ourselves and the lending sources. If a company has traded at a loss at any time during the last three years, this will make it very difficult to arrange additional lending, unless there is a good explanation from the company’s/business’ accountant explaining why the loss has occurred.
Please be aware that in Europe lending will not be possible if there has been any form of adverse credit, such as county court judgements or defaults. Also, rental income is not normally taken into account as part of the calculation of affordability (although in France, there may be exceptions with some lenders).
On the plus side, if a business pays for a personal expense such as a car loan, then this debt will not normally be taken into account when evaluating how much you can borrow.
I am leaving my current job to start a new occupation in another country. What additional information will an overseas lender require when considering a mortgage application?
- Is there a probationary period with the new job, as the majority of lenders will not consider an application until that period has finished?
- Are you continuing your career in the same type of business/occupation, as some lenders could require at least 12 months’ experience in that new field of work before they consider an application?
- Is the new job on a permanent or temporary/rolling contract basis, as this can cause problems? Lenders will look at your long-term employment history with this type of work and will definitely require a copy of your latest CV and new employment contract.
- Will you continue with any existing loans/mortgages in the UK? Some lenders do not take into account any rental income you will receive on existing properties when calculating how much you can further borrow.
Mortgaging & Financing Typical Residential Overseas Property Purchases
Can you give me some basic information about the lending criteria and application process for popular European countries?
It is very important to mention that all applications are subject to a client’s personal financial status and the valuation of the property. The affordability is on a case-by-case basis, as we look at a client’s overall existing earned income and liabilities.
It should be noted that although there is no restriction from a lender to renting a property, a client should check locally with their lawyer whether any local licenses/permissions are required for this purpose. Any rental income received will not be taken into account for the overall mortgage calculation.
When applying for a mortgage, which areas could be problematic – in no particular order?
- Insufficient deposit – check with the lending source the maximum loan to value
- Not allowing for additional
settingup costs – ie government taxes and legal costs
- Down valuation of the property
- Legal/planning issues concerning the property
- If you are employed, gross salary too low – ie some lenders have minimum income required
- Gross salary after tax too low to cover both existing and new debt
- Personal expenses too high when calculated as a percentage against earnings
- If self-employed, net personal income is too low over an average of the last three years
- Turnover fluctuating too much between profit and loss
- Turnover and profit decreasing each year, with no projection of an upward turn
- Past bad credit – ie defaults and county court judgements
I am considering purchasing a property overseas and possibly require a mortgage. Is there anything I should consider if I am turned down for a mortgage?
It is worth considering adding the words “subject to an acceptable mortgage offer” (or similar wording) to any sales contract you sign.
This wording should also be added before any deposit is paid to try and ensure this deposit is refunded should a mortgage not be forthcoming. This could be because of a legal problem with the property or down valuation, as well as personal financial reasons. Please check with your independent lawyer regarding the most applicable wording that will apply to the country where you are purchasing.
I’m thinking of purchasing a property in Greece. How easy is it to get finance?
It is very difficult for a number of reasons, including the general economic situation, as it is perceived by lenders to be poor and therefore there are concerns about investing in that market. However, please note there are selected lenders who may take a view on properties of €2 million and above.
Property values are low and still falling in some areas and buyers must be aware that there is unlikely to be any growth, although you may get good rental returns in Rhodes, Corfu, Crete and other popular areas of Greece.
Another negative is that the country could eventually withdraw from the euro, which could cause currency issues.
I’m considering purchasing a residential property in Greece and may require a mortgage. Is this possible?
At this time, due to their past/present economic problems, I have not found any retail/ lending sources for Greece unless the purchase price valuation is over €2 million when international private banks may be able to assist, subject to your personal financial status and valuation of the property.
I have recently been made redundant and am considering relocating to France. I plan to live off the redundancy money and rental money I will receive from my existing UK property, which still has a mortgage in place. Will I be able to apply for a mortgage in France beforehand?
French lenders will require at least sufficient earned or pension income to evaluate how much you can borrow to purchase a property in France. They will not take into account the rental income received (as this is not guaranteed), but will take into account any existing liabilities i.e. your mortgage repayments.
On a case by case basis, investment income can be considered, but it will depend on the amount invested, where it is invested and the yield being obtained. If you do eventually gain employment in France, the majority of lenders prefer you to have been employed for at least 12 consecutive months and have no probationary period remaining.
I'm buying a property that's still under construction. Can I be sure it will match the specifications I've been given?
This concern applies primarily to new properties which, when completed, can bear little or no resemblance to the property you originally signed up for. For example, it may have fewer bedrooms; one or more rooms may be smaller than originally specified; there could be no sign of the garage or other outbuildings that were promised; the swimming pool may not be the shape or size that you’re initially agreed to.
If you are building your own property, make sure you instruct a reputable site manager or foreman and obtain references from previous clients.
If you are purchasing from a development, your independent lawyer can check that the specifications you requested in the original sales contract match those of the completed version.
‘Protected’ & Restricted Use Properties
The property I'd like to buy is very old and I think it might have 'protected' status. What should I do?
Occasionally properties are ‘protected’ due to their age, location, design or construction. This can lead to restrictions regarding your use of the property and any changes you wish to make to it.
If in doubt, take advice from either an independent lawyer and/or an architect and check that it is ‘protected’, what restrictions apply to usage, cosmetic changes or structural work (including extensions).
Untrustworthy Agents, Developers & Vendors
How do we know if we can trust the agent selling the property we'd like to buy?
Over the past few years, many new developers and agents have come into the overseas property market with very little experience and, on occasion, a lack of cash reserves. This has inevitably led to problems with unlicensed agents, bad selling and, in some cases, bankrupt developments.
Before purchasing from an agent or developer, check how long they have been in business and that they have all the correct licences in place to operate in that country. Ask them to provide details of past developments so you can check the quality of these and how they have stood the test of time.
You could also obtain references from existing customers and ask your independent lawyer to make some financial checks.
Our vendor has promised that as part of our purchase we will receive membership at the local gym. Is this a scam?
It is sometimes the case that when a property is sold, especially if it is a new build, promises are made by the developer about certain facilities being provided on-site or nearby (such as shops, restaurants, hotels and medical centres) or that membership to local golf and health clubs will come part and parcel with the purchase. When contracts are exchanged, however, it is a different story and these promises turn out to be fruitless.
As well as checking with your independent lawyer that the provision of these facilities is within the contract you are eventually to sign, do some digging into the developer’s track record. See if they have provided similar facilities in other developments and speak to current and past owners about their experiences.
It may be useful to build in a ‘penalty/compensation’ clause into your contract in the event of the amenities promised not being supplied.
Is there a risk that my vendor is trying to sell me a property that they don't actually own?
When buying an overseas property, especially in rural areas or emerging markets, you must ensure that you have full ownership of it. Sometimes restrictions are applied – e.g. ownership can only take place in conjunction with a locally based resident (where you have a minority shareholding) or in the name of a locally based or offshore company.
There have been occasions when shady dealers have sold a property that they have no rights over, sometimes to more than one person. This is a particular risk in countries with an unstable recent past or a history of population displacement.
Your independent lawyer should conduct a search on the property. This will confirm that the property has a title deed and that the vendor is legally allowed to sell the property.
How do I know if the property I'd like to buy has been accurately described in the brochure and on the internet?
Properties which may have looked great in a sales brochure could end up being located in problematic or totally unsuitable areas. For example, your dream property may actually be situated next to a motorway, a local airfield or a municipal rubbish dump. Alternatively, it could have been built next to the local sewage works, or within an area used for military manoeuvres. Or, it may be the case that the neighbours have dogs which bark incessantly or noisy livestock.
Never ever sign up for a property that you have not taken the time to visit. When you do visit, do so at day and night, and if possible, in different seasons.
Make time to talk to people who already live/own property in the area you like to get a better understanding of what it is like to live there. Ask the neighbours about their own experiences.
I am thinking of buying a property abroad. Do I need to arrange an independent valuation?
If you are arranging a mortgage secured on the property then the bank will carry out its own survey. This is normally for its own purposes to check that the property has no obvious valuation and structural problems. It is unlikely that the surveyor will report on potential legal problems as this is normally undertaken by a separate independent lawyer.
Therefore, it could still be beneficial to arrange a separate valuation to cover more in-depth details concerning the property. These could include a more detailed structural report, title searches and checks on the boundary, drainage and utilities.
If you are not arranging a separate mortgage then it is important to arrange an independent valuation to carry out all of the above (including the parts a bank’s valuer has undertaken). A surveyor would also identify if it is legally built and has planning permission. They would also advise on whether the property is in an area that could cause concern for future sale, for example, the location.
I’m considering buying a property in Spain. Do I need to get it valued?
Yes. Despite some people believing it is not necessary to get a valuation – it is. If the property is new, you will need to check that it has it been constructed properly with all the correct licences. If it is an older property, it could cost you in the longer-term if you do not check for any possible defects. Check whether any guarantees have been provided and that they are valid and up to date.
If a bank is lending against the property, find out if they have carried out a survey and what type, to ensure it will protect you both. You may wish to arrange a personal survey for peace of mind.
If it is a new property, the foundations must be of a sufficient depth. Unscrupulous developers may build properties on poor soil, use sub-standard building materials or build in dubious locations, such as flood plains, or too close to nearby cliffs. An independent valuation will reveal any problems.
I think that the property I'm interested in buying is overpriced. How can I get an accurate valuation?
Sometimes property prices are uplifted due to large volumes of foreign interest or because the property is situated in a ‘touristic’ area. If banks are not currently lending within that area, a ‘true price’ may not have been set, as locally-based valuations may not have taken place.
Instruct an independent surveyor, ideally one which is not locally based, to check the valuation and the appropriate comparable properties in the area.
If you are using a lender to secure a mortgage on the property, check what type of valuation they will be carrying out and if you are not satisfied that this will provide you with an accurate enough figure, still seek advice from an independent surveyor.
How can I find out if the property I'd like to buy has been built well and is in good condition?
We have dealt with cases where new properties have been built in poor soil with unsatisfactory foundation depths, others where sub-standard building materials have been used, or where they’ve been built in dubious locations, such as floodplains, or too close to nearby cliffs.
However, construction issues are not unique to just new properties – older properties may have hidden problems such as damp, timber rot, wiring defects or subsidence.
Obtain an independent valuation, even if it is a new property, as this will highlight any problems.
If you are buying a new property, check the developer’s past building record and look into comparable properties in the area and any re-sales on the existing development to see how they have ‘weathered’. It may also be useful to get some personal recommendations from previous buyers.
Free Overseas Mortgage Assessment
If you require a mortgage for financing your overseas property, please complete our questionnaire and we will let you know if we can assist further.
As a mortgage is secured against your home, it could be repossessed if you do not keep up the mortgage repayments. Simon Conn is registered under the approved persons regime with the Financial Conduct Authority under individual reference number SLC00026. Please note, that the FCA does not regulate all forms of mortgage activity. It is important to note that Buy-to-Let Mortgages (unless more than 40% owner occupied), Commercial Mortgages and mortgages secured on property outside the UK are not covered by statutory UK regulation. If a mortgage is denominated in a currency other than your home currency, there is a risk that changes in the exchange rate may increase the equivalent value of the debt in terms of your home currency.
We will provide you with a free initial consultation and we will always explain exactly what you will be charged before you choose to proceed with an application. As we offer a bespoke service our charges can vary and the actual amount payable will be shown on any eventual quote and will depend on the country where you require finance, who arranges the finance for you, plus your personal circumstances and loan requirements. It is important that you seek independent legal and taxation advice on any property that you are going to purchase.