Property Investments - Case Study

QUESTION:

We are a middle-aged couple looking to buy a retirement holiday home, most probably in Europe. We have two children who are both at university and we own a property in UK, which we rent out. Here in the UAE my husband’s company pays for our property in the UAE. We want to buy somewhere in the sun as a retirement and holiday home in about six years time. What do you suggest in terms of financing the property?

 

I have made a number of assumptions with this question. Firstly I have assumed that that the UK property will be retained, and the sale proceeds will not be available to fund the home in the sun.

 

The next decision to make is whether to purchase the property now, or to wait 6 years. There are pros and cons of each option. If you decide to buy now you will potentially benefit from 6 years of growth on the value of the property. If you do not have a deposit already saved, you could consider re-mortgaging your UK property to raise some equity and then use that to fund the deposit for your property in the sun. The property could then be rented out to assist with meeting the mortgage costs while you continue to reside in the UAE.

 

Alternatively if you prefer to wait you can use the time to accumulate excess income to fund the deposit. It could be very difficult to predict how much you will need in 6 years, so I would suggest saving as much as you can afford.

 

Regarding the finance arrangements, there are a number of options to consider. Firstly potentially the most straight forward way to raise the required funds would be to re-mortgage your UK property. This is because it is likely that the property will have significant equity accumulated within it, and so will be a low risk loan for a bank to lend against. Also the procedure is known, everyone will be communicating in the same language and it should be reasonably inexpensive to do.

 

However the issue with this option is that the funds will be released in Sterling and will have to be converted into Euros, which may or may not be advantageous, dependant on exchange rates. Therefore it may be worthwhile to source the loan in Europe, in Euros and avoid any currency issues. I would strongly recommend that you take good legal advice in the country of purchase so that you do not get caught out with any unexpected legal details.

 

Before the property is purchased it would be useful to consider the inheritance tax implications of the purchase. For example if the property in question is to be bought in Spain or France there are very different rules to those that apply in the UK.

 

A lot issues to consider for what appears to be on the surface to be a relatively straight forward issue, which is why I would always advocate seeking professional financial advice before proceeding with any venture.