Buying a property is one of the biggest financial decisions people make and requires careful consideration. If buying a property abroad and are thinking of moving there permanently, planning and good advice are essential.
The first thing to get to grips with is your budget. You must be realistic when assessing how much you can spend and how you will fund the purchase. When determining a maximum budget keep in mind asking prices are generally negotiable.
If you are planning to move to Italy full time, how you will you support yourself?
Financing your Italian Property
When assessing which finance option is right for you, consider how much of your savings you wish to invest in your purchase. You may decide to use savings plus equity released from your current home.
Alternatively, you may think a mortgage is more suitable, either in the UK or in Italy. Italian fixed mortgage rates currently stand at 1.5% for 20 year mortgages. Note: Italian banks lend up to 60% LTV.
Another possibility would be a developer's mortgage. A good example of this is Podere Ampella where the developer is offering 75% mortgages (subject to status) and 55-60% mortgages (available to non-status).
Vendor finance is another option now seen in Italy, in the form of rent-to-buy. Italian law regulates rent-to-buy agreements. They are popular as full payment is not required immediately, which helps cash flow, and you can either live there yourself or rent the property to third parties during the agreement, so you could cover the costs of the vendor finance through rental income. Completion on the property with a rent-to-buy agreement must take place within a 10 year time frame.
On top of the purchase price it is also important to factor closing costs into your budget. Closing costs will include purchase tax, notary fees, agency fees and translator fees. You should allocate around 8-10% of your budget for closing costs, of course you may get the property at a 15% discount - not uncommon - which will cover these.
If you are planning to restore, how will you finance the work? Italian banks will lend for restoration work. Bear in mind that payments are staged for restoration work.
You will need to determine if your purchase affects your tax or pension situation. How much will you need to set aside for the day to day running costs and on-going maintenance of your property?
Foreign exchange rates will also impact your finances if you are receiving pension payments or making your rent-to-buy payments from abroad. It is wise to agree a rate for future transfers with your FX company right from day one. It is worth talking to Smart Currency who will help you manage the risk of volatile foreign exchange rates.
To facilitate your purchase and future payments you will need to open an Italian bank account.
Before deciding on which option is right for you, it is advisable to consult your financial adviser.