- Buying and selling property in EU countries involves a lot more bureaucracy and paperwork than before Brexit
- It can be harder to get a mortgage for a property in an EU country
- Buying a property in an EU country is more expensive than before Brexit
Britons have historically been keen buyers of property on the continent, but the impact of Brexit and Covid-19 has left prospective buyers and sellers wondering how or if the process has changed. Yet while there may be uncertainty about where British citizens stand when it comes to the overseas property market, it doesn’t seem to have put buyers off, given the lure of a second holiday home or retiring on sunnier shores in the wake of the pandemic.
“Covid lockdowns and the new post-Brexit world haven’t discouraged Brits from buying overseas,” says Miranda John, international director at mortgage broker SPF Private Clients. “We are now seeing pent-up demand which has been building since 2016.”
However, alongside the usual considerations, such as the legal, liquidity, currency and tax issues of buying a property abroad, “there’s a lot more bureaucracy and paperwork to deal with during the buying process now,” according to Rob Gill, managing director at Altura Mortgage Finance. “You also need to check that you can open the necessary bank accounts as some providers, such as Coutts, are no longer serving Britons living in the European Union (EU).”
Potential challenges mean it is vital to seek advice from a mortgage broker, legal expert and tax adviser who specialises in the idiosyncrasies of the country where you’re buying and maybe eventually selling.
Getting a mortgage to buy abroad
Generally, the process of buying abroad remains the same post-Brexit. However, if you require a mortgage, you may need to put down a larger deposit. Pre-Brexit, British buyers usually needed a deposit of around 30 per cent but this may rise to around 50 per cent as lenders are increasingly cautious, particularly during the pandemic.
“As with any lending it’s about risk and, as you’ll no longer be an EU resident, you will have to work harder to get a mortgage,” warns Ian Gray, senior partner at expat debt and finance adviser Kinnison.
With no signed agreement with the EU on financial services, you may encounter difficulties securing finance. “Most European countries are still keen on welcoming British buyers but in France at the time of writing there are very few lenders who will consider British residents so the choice of lender is limited,” explains John.
Navigating the visa requirements
Besides bigger mortgage deposits and tougher lending conditions, any changes to the buying process will depend on whether you are permanently relocating or seeking a home on sunnier shores which you will be likely to visit for a few months each year.
“Certainly, Brexit has made it more difficult to move to Europe,” says Inez Cooper, managing director of William Russell, an international insurance provider for expats. “Brits need to negotiate the visa requirements and, of course, Covid-19 restrictions have hardly made things any easier moving anywhere in the world.”
Pre-Brexit, Britons had the right to visit, live and work anywhere within the EU, without a maximum stay period or visa. However, since 31 December 2020 new rules limit the amount of time to 90 days out of any 180. And this limit isn’t just for the country you buy in, as holidays to other areas of the Schengen travel zone take up your entitlement, too. However, the changing restrictions might not be an issue if you are buying a holiday home rather than relocating permanently.
If you plan on staying for longer, you will probably need a visa so should check that country’s requirements before taking the plunge and buying a property.
Jason Porter, business development director and head of the European emigration advisory service at Blevins Franks, says: “The EU allows member states considerable freedom in establishing their own policies here, and each has different visas and residency permits for the employed, self-employed, entrepreneurs, students and the 'economically inactive' – commonly retirees and those living off capital and investments.”
As well as visas running for one to five years, some countries, such as Spain and Portugal, offer so-called golden visas. “These provide the individual or family with the maximum flexibility on how long or short their stay might be, with no minimum number of days for Spain and only seven per year for Portugal,” says Porter.
In Spain, buying a property for at least €500,000 (£429,486) would allow you to apply for a golden visa. These offer holders a huge amount of flexibility, and they’re a good route towards permanent residency and citizenship, if required.
However, depending on the country, bear in mind that you could also have to pay around €5,000 to €6,000 for each application for a visa. This is on top of professional fees at the same kind of levels for completing the relevant forms, with additional government and legal costs on renewal.
Other countries, such as Italy, Greece, Cyprus and Malta, have their own forms of investment-based visas, which also require a minimum spend on qualifying property. “Many also have additional tax kickers, which might mean you pay a single, low rate of tax, or perhaps do not pay tax on income or gains generated outside the particular jurisdiction,” adds Porter.
If you want to buy a property with the aim of retiring in an EU country, you may also have to show evidence that you have enough income to support you and your family without being a burden on the state. In Spain, for example, you must prove that you have a minimum annual income of €27,115 (£23,291), in addition to €6,778 for each additional family member.
Tax and currency
If you are renting out a second home, for example in Spain, the rate of income tax you will pay as a non-resident has increased from 19 per cent to 24 per cent. “You pay this on a larger amount as you will no longer be able to deduct expenses," adds Porter. "Similarly, if you sell the same property any gains will also be taxed at this higher rate."
If you are selling a property abroad, the process remains the same following Brexit, but check any tax liabilities. Gray says: “You must understand where you’re liable for tax on any gains, whether that’s in the UK or the country where you’re selling, as this is where I see a lot of people encounter difficulties.”
The pound, meanwhile, has steadily increased in value against the euro since January 2021 which isn’t good news for those selling their homes in Europe to perhaps move back to the UK.
Jeremy Thomson-Cook, chief economist at currency exchange service Equals Money, says: “If you’re unable to settle abroad now because of visa issues, for example, you’d have received more money on sale when converting to sterling several months ago. The broader market expectation is that sterling will continue to rise, too.”
Glenn Uniacke, managing director of UK international payments dealing at Moneycorp, adds: “Although we’ve seen signs of a recovery for the pound, even through the pandemic the sterling/euro rate remains under 1.20, so anyone selling properties in euros might still stand to benefit from an undervaluation of sterling. However, with the Bank of England expecting a surge in growth to pre-pandemic levels by the end of 2021, we might see sterling recovering more ground.”
If you’re concerned about this, you could secure an exchange rate for several years by using a currency forward contract which can protect against the vagaries of rate movements. But it depends on where you think rates may move so speaking to a currency specialist will help to clarify options.