Is it wise for retirees to consider buying property abroad?

2nd August 2013

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It might be 30 degrees in the shade today, but do you know what the weather is going to do tomorrow? Or at the weekend? Given the unreliability of the British climate, no wonder more people approaching retirement are considering buying a foreign property to enjoy once they stop working. Consumer journalist Jill Insley considers the pros and cons.

The number of future retirees aged between 45 and 64 who would consider buying an overseas holiday home has risen to 38%  or 5.4m in 2013, up from 30% in August 2006 -before the financial crisis.

Despite the fact that the majority of would-be buyers – actually four fifths – would prefer to keep their roots in the UK and not move abroad permanently, that still means at least 1m people would consider moving abroad permanently.

But is this wise, given the problems that some ex-pat retirees have suffered in recent years?

We’re not talking about small problems either. In Valencia, Spain, some Britons have seen their dream villas bulldozed because the builder failed to get planning permission. Others have lost deposits on properties never completed because the builder went bust.

Those that fall sick often find that overseas health systems fall far short of – or is just different to – the care provided by the NHS. In Spain, for example, families are expected to provide basic care and food for patients – but what do you do if, as an ex-pat, you are living in a different country from your family?

Retirees who bought homes within the European Economic Area, Switzerland or countries that have a social security agreement with the UK (for a list visit http://www.dwp.gov.uk/international/social-security-agreements/list-of-countries/) benefit from rises to their state pension and other state benefits in line with those paid to pensioners living in the UK. But those living outside these areas have state pensions frozen in time, regardless of rises in the cost of living.

Even those who live in Europe and do benefit from state pension rises have seen their income hit by the fall in the pound against the euro. Before 2008 and the start of the financial crisis, expats living in the Eurozone could expect to get 1.5 Euros for every pound – now it’s closer to 1.15 Euros.

Others simply become homesick or disenchanted with the country they have chosen once outside the main holiday season, only to find their property’s value has fallen and they are unable to afford to repatriate.

Many home owners in countries particularly affected by the economic downturn could even be in negative equity. Jellena Cvjetkovic, international agency network manager for Savills says that property prices in some parts of Spain have fallen by as much as 50%, while homes in some areas of France are down 30% from their peak.

However, these price falls make the prospect of buying broad even more attractive for those approaching retirement now.

The key to retiring abroad successfully according to Chris Saint, head of currency dealing at Hargreaves Lansdown, is to do your homework before making your final decision.

“Visit the country you are interested in at different times throughout the year, not just in the main holiday season, to make sure you really like it and can cope with the weather conditions,” he says.

Consider where you are going to live very carefully. While a villa in the sticks might be the perfect destination for a two week holiday, its remoteness could prove less than ideal as you age and need more help in running your home, need frequent access to medical care, or simply want the human contact of sitting in a nearby cafe or visiting a local shop.

Potential buyers abroad should also check out the rules relating to tax, pensions, inheritance, and the costs of the buying process, which in some countries can be even higher than the UK. “Get legal advice from a lawyer local to that area who knows the law of the country you want to buy in, and make sure he or she can speak English,” he says.

The website www.Justlanded.com provides a wealth of information about a wide  range of countries typically chosen by British expats, including housing, health, money, language, education and culture.

Cvjetkovic acknowledges that the economic downturn and the financial vulnerability of developers has caused serious issues for buyers: “We found it very difficult to sell anything off plan once the crisis started. Unless you are dealing with a reputable and well-backed developer, we would recommend you buy something that is already built.”

Buyers should also think carefully about how much money they will need to live on and how to preserve the value of what they have got.

Currency fluctuations can mean the price of a property changes by thousands of pounds between making an offer and completing. It is worth considering signing up for currency reports so you get a feeling for the right time to buy, and fixing the rate at which you are exchanging Sterling for the currency in your new country.

For those who are receiving a regular pension income, it can also be worth fixing the rate of exchange for up to two years at a time. Hargreaves Lansdown will convert a minimum of £250 a month; amounts from £250 to £499 carry a charge of £7, but Saint says the conversion charges for amounts from £500 upwards can be absorbed into the exchange rate.

Even if the exchange rate drops, it may also be possible to top up your income. The Pensioner Campaign UK points out that Britons who retire in one of the European Union countries are legally entitled to work in that country. “Working hours in Mediterranean countries are usually more flexible than Britain’s 9 to 5 culture. There is also a huge ex pat community abroad so it should be easy to make contacts and obtain employment advice,” it says.

Although Saint has come across people who have struggled in the last few years  after moving abroad, he says he will still consider buying abroad himself. “I will think about it nearer retirement age, probably Spain because I am most familiar with it. But I will be considering all the implications,” he says.

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