FAQ - Instalment Contract

Frequently Asked Questions

What is instalment contract or seller finance?

An instalment contract is also referred to as seller finance, delayed completion or long stop. It’s basically a way of legally buying a property but delaying the time between exchange and completion.

It is a property purchase contract between a buyer and seller, whereby the buyer pays for the full-agreed price on an instalment payment plan over a period agreed between the buyer and seller. That’s why it is called Instalment Contract.

In the meantime, the buyer is entitled to occupy and use the property as his own, maintain it, pay outstanding bills and even make non-structural improvements without vendor’s permission.

Who holds the title of the property?

Title to the property remains with the seller until the Instalment contract is fully paid out. The seller therefore has “security’ for the payment of the purchase price.

When Stamp Duty is due to be paid?

Usually, upfront payment of stamp duty is required upon exchange of contracts.

How is Capital Gains Tax paid?

The payment of Capital Gains Tax is widely dependant on the country where the property is situated. Most likely it will be requested to be paid at the point of entry into the contract (i.e. upfront).

However, we strongly recommend you take specialist advice on this matter as you might find being able to pay CGT on the emerging basis – in fractions, proportionate to received yearly payments.

What is the benefit for sellers?

Some vendors may struggle to sell their properties for a long period of time. Statistics show that it takes on average 4 years to sell overseas holiday home. Common solution in such cases might be dropping the price, lower and lower.

Selling below the market value or outstanding mortgage figure may not be an option to them. Sellers may not require all the money from the sale immediately, they might be rather happy for the problem property to disappear, and for buyer to cover the outstanding finance meanwhile.

What is the benefit for buyers?

It opens up another avenue of buying property as an investment or second holiday home in a foreign country without the need of getting a local mortgage. In many European countries, such as Spain and Italy, the mortgage is registered against the property rather than the individual owner. Therefore, it is absolutely legal to enter into the agreement where the buyer takes over repayments of the existing mortgage.

Do I have to buy the property if I changed my mind after some time?

With an Instalment Contract the buyer is committed to complete the sale. You enter into an agreement with the seller, whereby you commit to buy the property within agreed timeframe. It’s essential that you get the right advice before entering into such agreement and are clear on the requirements and conditions.

An instalment contract allows you to purchase a property without going through the traditional route and finding a hefty deposit in order to either start a property portfolio or buy a home for you and your family.

In most cases the contract can be resold to another buyer prior to completion on matching terms, or immediately.

What fees do you charge?

There are no application fees. Our fees are included into initial price of the property and agreed with the vendor.

Can I visit the property before buying a share?

Yes, we would strongly recommend a viewing as soon as possible. Please get in touch to make sure we can organise local team to show you around during your planned visit.

Why do people take out an instalment contract?

The reason that people delay the completion on a property will differ between properties, buyers and other interested parties. One common reason is that the property is in negative equity (the outstanding mortgage figure is higher than the current market value of the property) and an instalment option will give the seller and buyer (and everyone else involved!) time to switch to neutral and then positive equity making it a much better deal.

Another example is that the seller does not need all the money immediately and prefers receiving equal monthly payments as another source of income. They also might be able to offset CGT against several years rather than in one go.

Can I resell the property on instalment contract prior to completion?

Your legal agreement should contain clauses clearly stating your obligations and rights to sell the property on certain terms to the third party. Always make sure you have checked your contract and happy with the early re-sale option.

Can I let the property out before completion?

You can treat the property as your own and eligible to rent it out to the third party if you agreed so with the seller - carefully check your agreement prior to signing it, and make sure it meets your requirements with regards to your plans.