Buying a holiday home overseas - advice please including mortgages

daveconnects

My partner and I are currently considering (very seriously) buying a holiday home in the Canary Islands and we need as much advice as possible in a few areas.

Our current situation: we both have homes in the UK which are both mortgaged with 9 years left on one and 15 on the other, both in our own name and we intend to maintain both houses due to where we both work.

We both have secure employment with good income levels with no issues in easily making our mortgage payments. We are both 35 years old.

We are interested in buying a holiday home in the Canary Islands and have a few properties identified in the region of £80,000 and we have about £25k to put down.

Despite looking on Google we don't really know where to start.

Who would be good to talk to concerning mortgages on a foreign holiday home?

We would also like to have as an option renting the property to holiday makers on mostly a short term basis - not necessarily through concern about meeting any repayments but because it would make financial sense to earn some money if we can.

Any advice or guidance from anyone on the forum would be very welcome.

Many thanks.

David.

AnotherJoe

daveconnects wrote: »

My partner and I are currently considering (very seriously) buying a holiday home in the Canary Islands and we need as much advice as possible in a few areas.


Despite looking on Google we don't really know where to start.

Who would be good to talk to concerning mortgages on a foreign holiday home?
.

A Spanish bank.

A relative of mine owned a property in Tenerife for about 10 years. Absolute pain. You have to employ someone to manage all the local stuff, things as mundane as rubbish collection, and as important as council tax equivalent, utilities, then there is maintenance and how to do that and dealing with tenants plus the tax issues from rental. I very much doubt it was worth the time and money they expended on it when they went out maybe 3 times a year.

Might be worth doing though if you plan, for example to live there in the English winter and so get a lot of use from it.

I'd go see a local agency and talk to them and discover what they would charge to cover all of it. And I'd compare that with how much it would cost you just to rent a place. Once you add up all the ongoing fees the mortage etc thats likely many thousands of pounds a year. What would you spend if you just rented?

ognum

I frequently write on these holiday home threads so apologies to many who have read all I have to say already!

My first advice would be do not invest money that you do not have and cannot afford to lose. Buy a holiday home with cash that if things go wrong you can walk away from, not a mortgage or important money.

Do not take all your advice from local people, they have a vested interest in you buying, I once sat in a cafe abroad listening to some local expats persuading someone to take on a bar, these people did and within a year had lost everything and I mean everything. They went back to the UK to live in their fathers council house with him! I know you are not going to live there but people will know things you do not about future development nearby, loss of view, environmental issues and they won't tell you.

Once you own a property abroad when you go you are no longer on holiday. You will spend your hard earned holidays sorting out maintainence, bills, banks, refurbishing and working. Is that what you really want?

If you let what will you do when the fridge breaks and your holiday maker wants a new fridge NOW, they have paid you for fridge in their holiday home. For fridge substitute anything else.

Make sure you are aware of all the taxes going into the purchase and the ones coming out of it. Governments create taxes all the time in order to tax non nationals. A government abroad I know of has just created a land appreciation tax of 25% of any increase in property value!

Is the Canaries the only place you ever want to travel to because if you own a holiday home you will feel obliged to return when maybe you would rather go somewhere else for a change?

Make sure you know the Inheritence laws of the country, write a will, if you die this could cause many complications to your estate.

Think long and hard before you buy, don't let your heart rule your head.

seven-day-weekend

Also, whether you rent it out or not, the Spanish Government will expect taxes from you based on theoretical rental income.

Also, I agree with Ognum who has given sound and sensible advice.

daveconnects

Really appreciate the posts so far.. and I do take on board the comments to understand the pitfalls.

However, we are financially secure and would also welcome the guidance from anyone in the know, how to go about contacting reliable mortgage brokers etc.

In addition to our use of the property and the potential to rent we also see it as an opportunity to share this home by letting our families use it too.

martindow

I'm sure there must be expat forums that would have many people with experience of buying or living in the Canaries.

You really need to find out all of the expenses involved in buying and owning long term to go ahead fully informed.

You say you are financially secure - you want to stay that way!

ognum

daveconnects wrote: »

Really appreciate the posts so far.. and I do take on board the comments to understand the pitfalls.

However, we are financially secure and would also welcome the guidance from anyone in the know, how to go about contacting reliable mortgage brokers etc.

In addition to our use of the property and the potential to rent we also see it as an opportunity to share this home by letting our families use it too.

Dave

I note you claim to be financially secure but also note you have two mortgages and are planning on a third.

To many people this would seem a little less than secure. Why don't you just remortgage one of your current home if you are set on this idea.

We clearly have different opinion on what financially secure is.

Just also to say it's very philanthropic to consider buying this property for your family to use but when they have used it a couple of times they will go elsewhere, you will be left supporting the property.

.

Cakeguts

You have got to think this through. If you let your family use your holiday home you have got to decide who pays for the electricity bill and other utilities while they are there. I remember someone telling me about a huge argument with either a family member or friends who had stayed at a holiday home and expected to stay for several weeks entirely for free leaving the owner to pay for electricity used and the water. (Water may be metered) It can be more trouble than it is worth to rent your holiday home out to anyone.

People who go on holiday do not take bedding with them. They expect the accommodation to provide bedding, towels etc. How are you going to arrange this between lets? You need someone to go in and clean the place and change the linen.

AdrianC

You have three choices for mortgage sources...

A UK loan against one of your UK properties, with the equity released going to buy the Canaries property outright.
A Spanish lender.
A UK lender who are happy to lend against the Canaries property.

I know which of the three is likely to be the most expensive, most difficult and highest risk - the UK lender securing against both a relatively unknown property market AND hedging against currency.

A Spanish loan would introduce currency variables - you're borrowing in Euros, and repaying in Euros, but your income is in Sterling - and may involve a lot of paperwork for a non-resident. The costs of making transfers into the Eurozone every month may also add up, but there are ways to minimise that.

tom9980

I wouldn't even consider buying abroad unless you lived there for 1/3rd of the year it doesn't make any financial sense when you break down the costs down to a per day basis.

For instance my parents regularly go to greece they are roughly spending €50 per day in crete at the moment including flights/accom/food/travel costs. When you work out that buying in crete would cost them in taxes, legal advice, food, travel, internet access, phone etc they would end up only breaking even after 15 years or so. Given they are now retired it was not a certain they can travel for that length of time so long term stays at serviced apartments were the option we choose and leaves them free to move around for a change of scenery because it get a little boring after a month or so living in the same spot.

I honestly think you are making a huge mistake if you do this with a mortgage especially given you have one each already. I can most defiantly add you are not financially as secure as you seem to think either in my dads case it was accident at work and his working life was over at 49, in my sisters case it has been two redundancies in a few months last year. In life anything can happen and if one of you get unfortunate enough to undergo such a mishap the other one will be saddled service not 1 but 3 mortgages while looking after the other.

ognum

One bit of further advice, please make sure you keep all documentation regarding the rates at which you transfer money out of this county. The receipts for any repairs and the rates the money was transferred for them.

Also keep all information on legal fees etc, you will need all this information when you sell and more in order to claim a capital loss/gain to the UK government.