Avoid financial pitfalls when buying overseas

How to… avoid financial pitfalls

Finding that dream property in the sun should be an enjoyable and exciting process. However it is absolutely crucial that prospective buyers are aware of all the financial pitfalls that await them throughout the buying process and beyond. Mark O’Sullivan, director dealing at foreign exchange specialist Currencies Direct, explains how to avoid these pitfalls and ensure that your dream is a happy one through careful planning combined with shrewd decision making.

Failing to plan is planning to fail and this adage has never been truer than when purchasing an overseas property. The pitfalls are out there for buyers but thorough planning can ensure that you are ready for anything – and when it comes to buying property abroad anything can and often does happen.

Many neglect seemingly obvious issues like what they can actually afford. Before you even start taking viewing trips, put together a realistic price bracket and make sure you and your agent stick to it. Be specific about the properties you wish to view and the price bracket they fall in – falling in love with a place that you simply can’t afford will not help the process. Also, make sure that you work in the effect that currency exchange fluctuation can have on your budget and consider utilising a foreign exchange specialist to take advantage of forward contracts where you can fix a rate for up to two years in advance.

In this respect it is also of great importance to select a foreign exchange company that you can trust and one that will stick to the rate they have promised. Choosing a company with at least three years of audited accounts is a must and also ensures that they are financially strong. Log onto the web and search the company you are considering to see if they have received any negative press. Check the quality of their website (here you will find details of how long they have been in existence and any pedigree they may have in terms of industry awards) and see if there are any forums to discuss your options with buyers who have been through the process.

Once you have found a foreign exchange specialist you can trust and who is willing and available to guide you through the buying process, not only on currency issues but also in recommending trusted partners such as estate agents, solicitors and removals companies, you can begin the next stage of planning in earnest. When working out your budget remember that cost does not end at the asking price. Lawyer’s fees, taxes and insurance are just a few of the costs that will need to be met in your host country and can often be more expensive than you expected. Although this may seem painful it will end up saving you money in the long run. For example your solicitor can check that you are not inheriting a debt on the property and can also verify the legality and ownership of the property and the land it is built on.

Living expenses can become an unpleasant financial surprise for buyers too. Although your life may be changing your living expenses will probably remain the same. However by putting together a yearly plan of unavoidable outgoing costs like insurance (medical and home) and by taking extra time out to shop around for the best deals, you can save yourself hundreds of pounds. Similarly it is important to have an emergency reserve of cash in your plan to cover any unexpected costs that may occur.

Finally work out whether or not you will have to make regular foreign currency transfers for things such as mortgage payments, pensions or salaries. Using your bank for these transfers can mean that you miss out on competitive exchange rates, and are charged commission and transfer fees. A good foreign exchange specialist will offer more competitive currency exchange rates, no transfer fees and no commission.

So if you are serious about your dream of a second home in the sun, be serious about planning. By being savvy and shopping around you can save thousands and make sure that you hit the ground running when you finally move in. Last minute costs that have not been factored into your plan will slow the arrival of the moment when you can say all the hard work is done and all there is to do is sit back, crack open a bottle of fine wine (which you should be able to comfortably afford if you have planned well enough!) and enjoy your new home. 

Visit www.currenciesdirect.com, or call the Currencies Direct team on +44 (0)20 7847 9291.

You can also email them at london@currenciesdirect.com.