It seems that in recent years much of the world went buy to let crazy. The push for this was after the technology bubble burst, stocks crashed and investors looked elsewhere.
But the differences in the rules and available deals vary greatly from country to country. I have experience with both the UK and Italian property markets and thought I would write about Italian buy to lets and the differences with the UK.
Italian Money – Probably the best place to start is to get an understanding of who is buying the properties. In the UK properties are largely bought with the finances of the purchaser. They will have saved for a deposit, which may be as low as 10%, and have obtained a mortgage in their own right.
Italian annual salaries are a much lower in comparison to Italian property prices then they are generally in the UK. The Italian property prices seem to be actually maintained by the previous generation who sometimes purchase for their children, supply large deposits and provide payment guarantees to the bank. Without t hese funds the house prices would be unsustainable.
But for now it seems the situation with the Italian property market will remain. There are 2 contributing factors to make this possible; 1) Birth rates of 1.1 child per couple. In short there are less of the current generation for the previous generation to pass money too. 2) Italian Banking Reforms. Italian banks are gradually being taken over by foreign banks and banking rules are changing. Such changes may make borrowing easier.
Why They Buy? – In the UK market people will buy properties in relation to schools, where they have obtained work and social reasons.
But the Italian purchase is generally much more linked to being close to the family. With the parents generally a contributor or purchaser of the property they may often seek to have their child as close as possible. This means that it is often much more of an emotional purchase for an Italian then their UK counterpart and they will be willing to pay a premium.
Buying the Property – Fees
In the UK you will face the following fees; 1) Stamp Duty 0% if below £120k, 1% between £120,001-£252,000 and 3% there after. 2) Solicitors fees say £500-£1000. So your additional costs may only be 1%.
Now the Italian rules change things again. If the property you are buying is a second home and not your main residence then you will be subject to taxes of around 10% depending on the commune. The notaries fees will also run into a few thousand as a general rule.
For an Italian buy-to-let property purchase I would generally expect that you should be adding 12% for taxes and fees.
Another factor then arises ‘Agent Fees’. In the UK the vendor will pay an agent commission of 1.5%. But Italian agencies will charge 5%! As it is such a figure you will often find vendors trying to share this fee with the buyer.
Finding the Property
In the UK you have a wealth of sites on the internet that will show many photographs of the property and detailed descriptions with price. Also the agencies are helpful and will send property details through the post as well as call you when new ones arrive.
Think again for the Italian equivalent. Many Italians will try and sell their property privately to avoid the 5% fees. So you will find properties in papers and adverts stuck to the side of buildings. Problem is that you will very rarely see a photo, price or rough address. I have scanned page after page of private ads without seeing anything to differentiate between them. Just 2 bed apartments in ‘a town’.
But I don’t feel the Italian agencies are much better as they will often only have one photo of the apartment and this will be from the outside and they again do not generally show prices. I suppose the attitude is very different and you as the buyer must do much more of the work then you would expect in the UK.
After Purchase Costs
After buying the property you will then have some other costs that did not apply in the UK. Italian utility companies for telephone, gas, electricity and water all require that each new tenant or owner pay a registration fee. The last one I have account of was 150 euros. In the UK this registration is all for free as the supplier is pleased to have your business.
You also need to be more careful about what is included in the purchase if you believe you are buying a hospitable place as less is included on an Italian purchase then in the UK. As example a fitted kitchen is not included in a standard Italian purchase and might have been removed. Hence they may have taken the kitchen sink!
In the UK a variety of mortgage types exist that serve the buy-to-let investor. 1st there are actual buy-to-let mortgages that look at the rental incomes rather then the investors income when lending. Then you have the interest only option, where only the interest is repaid. But the general mortgage culture in the UK is different with people switching mortgages every few years to obtain best rates and more personally suitable deals. For instance re-mortgaging to release equity to buy more properties.
Italian mortgage culture is completely different. Interest only and buy-to-let options do not exist. Instead all mortgages will consider your income and existing commitments and the capital must be repaid with every instalment. Also an Italian borrower will typically stick with the original mortgage as most Italian mortgages restrict early redemption.
But Italian mortgages are typically much lower then the UK. On average about 2%, which sweetens the bitter pill.
I would also predict that as Italian banking reforms continue perhaps some of these products will arrive in Italy too. But I have no idea when
Sorry but Italian agency fees for letting will generally be higher then the UK’s average of 10%. But this matter seems to vary from agents to agents. You will also have additional governmental fees for registering each letting contract. Last one I saw was 150 euros, but you generally split this with the tenant.
You will also need to be more selective with your tenants then in the UK. The UK Assured Short-hold Tenancy Act provides that you may apply to repossess the property if the tenant has missed 2 months rent payments and this can take days to achieve. At this point the tenant can be evicted regardless.
Italian law is much slower and if they fall into a protected category you may find it almost impossible to evict them.
The only real bonus is that in the UK the landlord is obliged to carry out Gas Safety Inspections annually whereas such issues are the responsibility of the Italian properties tenant.