Advice to buy abroad

Aaron_R.

Hello everyone.

We are a married couple who wants to buy a home abroad, we seek for advice.

Picture: 28 and 31 year old, married, 5 years in England, stable job in central London, 40% of incomes spent in renting home, we'd love to buy a house in England. Really long term plans to live (and work) in London.
However, we are not able to raise enough money for a deposit to buy in London (or around) in less than 8 or 10 years. Renting is killing us for that purpose. Renting far from Central London is not possible as shift's start varies from 5:30am to 11am (hard commuting).

Goal: I am originally from northern Spain (lovely mountains) and I am considering the following option: buy a house in a good place in the capital of the county (£80k to £100k) with a mortgage's initial deposit I can hold (5 to 10%); rent it out with a local agency; save the incomes for some years and then buy a house in London (faster than the 8 to 10 years I was speaking before).
In 10 years time it would leave us in a 2 mortgages' situation, we are aware. Expecting monthly payments should be smaller than what we pay from rent at the moment. I don't put in consideration pay rises or bonuses to hold that.

Questions:
- Any of you have considered something like this before? Any "success"?
- Do you think it is too risky (currency exchange, 2 mortgage,...?
- As I don't hold any account with any bank from Spain, should it be easier to obtain the mortgage for the house in Spain with a UK lender?
- Or should I better deal directly with a spanish one?
- Would it be the currency exchange a nightmare for us? What would it be worse: sending money monthly to a spanish bank, or pay the mortgage here that will charge me exchange fees?

- Am I damn fool for proposing all of this?

Thank you for reading me,
Aaron R.

alex_163163

Don’t have answers to your question but I think one thing you might not have considered is the increased stamp duty rate on second homes.
When you come to buy a property in the UK, if you already own another property any where in the world, you would pay the higher 3% stamp duty on the UK purchase.
So for example on a £250k purchase, if you don’t own another property already the stamp duty would be £2500.
If you already own another property elsewhere in the world, the stamp duty would be £10k!!
This might offset any rental profit you have got from the overseas property?! The situation would be solved by selling the overseas property before you buy in the UK.

aneary

You will have to pay extra stamp duty on your second property.

I don't think you can get a mortgage on a home in a different country from UK lenders especially a BTL mortgage and I doubt a Spainish lender will give you a mortgage if you don't live and work in the country.

Therefore the above is non starter.

Aaron_R.

Thank you for your quick answers!

Regarding the stamp duty:

As I am the owner of my parents home in Spain (not a first buyer) I was thinking to buy in my sole name the house in Spain, then my wife to buy in London after some years with me as a guarantor.

Does it make sense?

Really grateful of your time,
regards.

aneary

As you are married you will still have to pay the extra stamp duty due to owning your parents home (unless it's under £40k).

Aaron_R.

Definitely is not worthy even £20k (very old house in a small place).

I will find out info regarding all kinds of Stamp duty both here and there.

Thank you very much one more time.

alex_163163

Yes as above, a married couple is considered a ‘unit’ so increased stamp duty will still apply.

saajan_12

Aaron_R. wrote: »

Hello everyone.

Questions:
- Any of you have considered something like this before? Any "success"?
- Do you think it is too risky (currency exchange, 2 mortgage,...?
- As I don't hold any account with any bank from Spain, should it be easier to obtain the mortgage for the house in Spain with a UK lender?
- Or should I better deal directly with a spanish one?
- Would it be the currency exchange a nightmare for us? What would it be worse: sending money monthly to a spanish bank, or pay the mortgage here that will charge me exchange fees?

- Am I damn fool for proposing all of this?

Thank you for reading me,
Aaron R.

Few concerns:
1) Managing a rental from afar will be terribly difficult - the responsibility ultimately lies with you, but you'll be entirely reliant on local agents who may not have the same goal as you. e.g.
- authorise unnecessary / expensive repairs with their linked tradesmen
- frequently changeover tenants to maximise their fees, even if that means voids for you
- less proactive on work-intensive tasks which affect you more than them e.g. evicting problem tenants,

2) Difficult/impossible to get a mortgage from a UK lender for a property abroad, or from a Spanish lender when your earnings are in UK due to questions in enforcing the property charge / sue you for the payments cross borders. If you do get a mortgage, you'd be picking from an incredibly narrow pool of lenders with very high rates just because of the unusual situation. Hence this only really works for cash buyers.

3) Added risk of very different property markets and FX risk. If you were thinking of buying a cheaper home and then selling it when your purchase your main property, if both are in a similar market then in theory your rent income/outgoings and the cheap property / home purchase values should rise / fall in line. So, to some extent you hedge yourself from moves in the market. e.g. if rents sky rocket, atleast your rent income would also increase. However in Spain the market is very different to UK so this may not be in line depending on the different UK and Spanish economies. Also, to convert money into euros for the purchase and then back into pounds when you get rent income, you'll be losing a margin on the exchange rate. Further, in addition to house price risk, you're adding currency risk.

4) Aside from the international issue, letting a property and renting yourself is a very inefficient way to do things, as you're paying gross rent but receiving net (as you have to pay tax on the rent income). Also, you increase the number of middle men you have to liaise with for repairs / changeovers on either house e.g. wait for your LL to repair, while dealing with your tenants to provide access for repairs on let property; rental voids when your tenants move out / stop paying, but rental overlaps when you want to move.

Aaron_R. wrote: »

Thank you for your quick answers!

Regarding the stamp duty:

As I am the owner of my parents home in Spain (not a first buyer) I was thinking to buy in my sole name the house in Spain, then my wife to buy in London after some years with me as a guarantor.

Does it make sense?

Really grateful of your time,
regards.

Re second home stamp duty, you and your wife are treated as 1 unit, with all the properties owned by either of you considered in the total count. So together you'd own parents' home and 2nd home in Spain making you liable for extra 3% SDLT when you purchase the London home.


IF you really want to, then buy a cheaper home in the UK to rent out and sell it when you're ready to purchase a home. Go for a smaller rental rather than further away, so you can still attend to any major issues.

Alternatively, invest any money you save and use the return on that to boost your income instead.. for the (relatively) small numbers it'll be a lot less hassle for comparable returns.

Aaron_R.

Good evening.

I can't express myself to show how grateful I am of your answers. Really, really thank you.

I have an idea where I am at the moment, thanks to you all, so I can start again to rethink what our priorities should be.


I'll be posting again if I need your help.
Thanks one more time.

isplumm

aneary wrote: »

You will have to pay extra stamp duty on your second property.

I don't think you can get a mortgage on a home in a different country from UK lenders especially a BTL mortgage and I doubt a Spainish lender will give you a mortgage if you don't live and work in the country.

Therefore the above is non starter.

No idea about Spain - but we own a French gite - have a French mortgage - but live in the UK - so I would have thought that Spain would be the same - it will be based on what you can afford.


Mark