Time to bag a bargain place in the sun?
10 August 2012
by Sam Barrett (financial journalist) for Standard Life
During the wettest UK summer on record, and with overseas property prices falling, a retirement place in the sun has never seemed more tempting. We look at the pros and cons of buying abroad.
For those attracted by the prospect of almost guaranteed sunshine, checking out the prices of overseas properties is only likely to add to your desire to buy abroad.
According to property website rightmove.co.uk, you can snap up a two-bedroom apartment on the Algarve for €99,000(1); a two-bedroom villa with sea views in Greece for €120,000(2); or a three-bedroom country house in Spain for just €125,000(3).
On top of this, as a result of the Eurozone crisis, property prices in many countries have tumbled. Figures from the Royal Institute of Chartered Surveyors show that Spain saw one of the biggest falls in property prices, dropping almost 10% in 2011(4).
But while the thought of sitting on the terrace of your bargain property enjoying views of the sun setting over the clear, blue waters may be incredibly appealing, retiring abroad is not without its potential pitfalls.
Buying and selling: what you need to know
First, although the property may be cheap, you’ve also got to factor in the cost of buying and selling. Taxes and fees can add a further 10% to 15% to the purchase price - more if you run into complications.
As an example of the types of costs that can creep in, if you buy in Greece, the estate agent will expect you and the seller to pay a fee of between 1% and 2.5% of the property value.
Also, although you may be looking to buy, think about how easy it will be to sell the property. Your isolated French farmhouse may be your dream retirement property, but will you be able to find someone else willing to take it on?
Similarly, pick up a modern apartment in a development and you could find yourself competing with all the other sellers when you do put it on the market.
And also be aware of the potential impact of currency fluctuations - the timing of your purchase can be key.
Be aware of the legal issues
The laws in various European countries are very different to UK law, especially when it comes to property. As inheritance rules can see your overseas property going to someone you didn't intend to leave it to, for example, it's worth seeking legal advice.
Legislation can also change, leaving you with an expense you never expected. A good example of this is the recent announcement by France’s President Hollande that he is proposing to extend the social charge to foreigners - adding a further 15.5% to the 19% already paid when a property is sold.
Think about your finances
Living abroad, you’ll also need to factor in the exchange rate. Although the pound may strengthen against other currencies, its value can also fluctuate. This will have a bearing on your lifestyle if you’re intending to live abroad on an income or pension in sterling.
Healthcare can cause a financial shock too. Unlike the NHS in the UK, when you’re abroad you may be expected to pay something towards your healthcare costs or take out private medical insurance.
Choose carefully where you go. Your state pension will be fixed for life on the day you leave if you retire to one of the ‘old’ Commonwealth countries, including Australia, South Africa and Canada. However, some countries have a reciprocal agreement with the UK that allows annual increases. Find out more about State pensions if living abroad through Directgov.
You might think that inflation in the UK is high, but consider the cost of living in other countries and how inflation could affect your spending power.
Retirement planning: be realistic
Low property prices, great weather and a relaxed lifestyle are an intoxicating mix but using an overseas property to make up more than a small part of your retirement savings is fraught with risks. Holding a good mix of different assets for your retirement will give your dream of retiring abroad a much better chance of turning into reality.
"Retiring abroad requires careful planning and advice,” explains Julie Hutchison, Head of International Technical Insight at Standard Life. “Many people think living abroad is cheaper than living in the UK, but this isn't always the case. Doing your homework in advance of moving is important. Think about the income you’ll need in retirement, your options and how exchange rates, currency fluctuations, as well as local tax laws may impact this.”
As with any investment the value of your fund can go up or down and may be worth less than what was paid in. Laws and tax rules may change in the future. The information here is based on our understanding in August 2012. Your personal circumstances also have an impact on tax treatment.
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- Rightmove 23.07.12
- Rightmove 23.07.12
- Rightmove 23.07.12
- Royal Institute of Chartered Surveyors, European Housing Review, February 2012
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