Calculate your budget for buying property overseas: 5 simple steps
I want to help you answer an all-important question: How much could you afford when you buy overseas? To do this, I'll walk you through the process of calculating your comprehensive buying budget.
You’ve decided to take the leap and buy a property overseas. This is a huge step that has the potential to supercharge your life but don’t get ahead of yourself. Refrain from searching online for your dream home on a Spanish costa or in the French countryside just yet. Contain your excitement and think about things logically. First you'll need to calculate your budget and factor in any additional costs.
Follow these five steps to confirm with near certainty what kind of property you can afford and the money you’ll need to set aside for later in the buying process – so you can focus your search and avoid any nasty financial surprises.
1. Review your finances
How much available cash do you have? This might include accessible savings or financial gifts. Having totted up the numbers you can add any potential capital you have available. This is typically generated from selling a UK home and other assets like a car or furniture.
If you need to apply for a mortgage, get an agreement in principle as early as possible so you know how much you could borrow and what type of property you can afford. An independent mortgage adviser can negotiate on your behalf and provide access to deals that are not available to the public.
2. Calculate what your pounds are worth in the purchase currency
The capital you have available in pounds isn’t the complete picture when buying property overseas. You must consider what your pounds will be worth in the purchase currency. This will be influenced by the exchange rate when the time comes to transfer your funds to complete the purchase. Currency markets are in a constant state of flux and can be volatile, making this difficult to predict. So, if you’re attempting to calculate your budget in euros or dollars for a property purchase in a few weeks or months, it’s impossible to know what your pounds will get you.
You can achieve security and certainty over the value of your budget in the purchase currency by locking in the current exchange rate using a forward contract. This gives you peace of mind that on payment of a deposit you will use the same rate for the next year, no matter what happens to the market. That way you know your budget in euros or dollars is secured, allowing you to focus on the next step in the buying process.
Banks often don’t offer this invaluable solution, so to harness the benefits of a forward contract contact a currency specialist.
3. Factor in additional fees and costs
Having fixed your buying budget in the purchase currency, there are other buying or transaction costs that it will need to cover, which can vary from country to country. For instance, in France, the buyer is responsible for the estate agent’s fees. This contributes to the overall costs in France being moderate to high, between 8% and 30%, compared to Spain where they are 10% to 15%.
Confirm the Notary’s and solicitor’s fees, which range from between 1% and 4% of the purchase price across most of Europe. And if you decide to have a survey, don’t forget to factor in that fee.
4. Take tax into consideration
Taxes are inevitable when buying property overseas, so work out what you’ll need to pay, including VAT. For instance, in Spain, a Property Transfer Tax must be paid upon completion of the property purchase, which varies depending on the region, with rates typically between 6% and 10% of the purchase price. If you’re selling a property, you’ll also need to pay capital gains tax.
Subtract the costs of the taxes you’re liable to pay from your property buying budget and set aside the money so you can access it when you need it.
5. Set money aside for travel and moving
Once you’ve completed your property purchase and received the keys, you’ll need to pay for your travel and shipping your belongings. It might seem too far off to consider yet but by getting quotes for removals at the start of the buying process you can budget for these costs when it matters.
If you plan on renovating and furnishing your property before moving in, consider the costs and put money aside out of your budget. Savvy property buyers, like you, pre-fund the account they have opened with a currency specialist, so their money is ready and waiting to cover these costs.
All that’s left to do is subtract all these costs from your capital, and you will be left with a realistic figure of how much you can afford in the purchase currency. Now you can go online and start your property search. Good luck!