Buying a home in the sun is a dream come true for many in Britain – more of us are buying foreign property than ever before. Around 2.2 million of us already own property abroad, according to Barclays, and that number will double over the next few years.
The rush to buy property in the sun shows no sign of abating, says Suzanne Clay, head of European business development at Barclays. But it could cost more than you think: Some people perceive house prices in Spain, France and Italy to be cheaper than in the UK, and this is not necessarily the case. The Barclays survey found that almost half of us think an average property in Spain costs less than £100,000, while this would buy just a one-bed apartment in the Costa del Sol.
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Rising prices
Faced with rising property prices across Spain and France, more Brits than ever have been looking to eastern Europe and beyond. Some are making a killing: Latvia has had huge growth in prices over the past two years, with apartments in Riga and the surrounding area over 45 per cent higher in a year, says Liam Bailey, head of residential research at property experts Knight Frank. Wage inflation, growing prosperity and access to less constrained mortgage finance have all contributed to rapidly rising prices.
Others sound a cautionary note: property investment specialist Assetz points out that returns in Bulgaria have fallen from 104 per cent to 44 per cent as market growth collapses and rental competition hots up. Bulgaria is facing a period of readjustment, says Stuart Law, Assetz MD.
While longer-term investors are still set to benefit over the next five to ten years, there are no longer instant returns to be made in the short term. An oversupply of rental properties is being aggravated by stories of dishonest local management agencies.
Despite price rises in France and Spain, properties there still representing an attractive proposition, says Assetz. France is continuing to perform consistently well, says Law. Low deposit levels of just 15 per cent have ensured that investors benefit considerably from capital growth of 9.1 per cent.
France is a proven market, agrees Trisha Mason, MD of French property specialists VEF, whose properties include ski properties with a guaranteed rental income. While the returns may not be as great as in eastern Europe, the risks are not as great either. You can still buy one-bedroom properties in the south of France from about 80,000 euros.
Yet eastern Europe is drawing growing numbers of investors too, says Law. Poland is attracting a lot of interest, Law says. Accession to the EU and the arrival of low cost airlines to the major cities saw capital growth climb a steady 20 per cent in the last 12 months. We predict 20-30 per cent growth per annum over the next five years.
Investors can make good rental incomes and see real capital growth, says Law, especially if they let to locals instead of focusing on seasonal lets. Amateur investors in particular are driven by the desire to holiday in their overseas property once or twice a year; they therefore focus on holiday destinations they might ultimately choose to retire to. But it makes sense financially to consider separating the investment from any intentions for personal use and seek local let property.
Do your homework
You need to do your homework first. Many buyers are still too hasty, argues Simon Conn, MD at overseas mortgage specialist Conti Financial Services. Buyers should not get caught up in a rush to buy, he warns, as Conti launches its Turkish mortgage deals. And first-time buyers who want a step on the housing ladder would do better looking nearer home, he warns – while eastern Europe can be rewarding, property there is a long-term investment, Conn cautions.
And buying on impulse can bring real problems, he says. All too often we hear of people desperate to bag a bargain only for it to leave a nasty taste in their mouths when problems arise such as an incorrect legal title over the property.
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Legal issues
Running into legal problems is all too easy, argues Conn, but it can be avoided: Make sure you’ve got a good lawyer who is completely independent. And never sign anything you don’t understand. If a contract is translated into English, make sure it’s an accurate translation.
Using a reputable company makes all the difference, confirms Ian Smith, head of European operations at Halifax, whose Banco Halifax Hispania arm helps British customers arrange Spanish mortgages. There are certainly slight procedural differences and different jargon, such as ‘evaluators’ rather than ‘surveyors’. However as long as care is taken, the whole process becomes no more complex than buying a property within the UK.
Too many investors forget other costs too, Clay warns: In addition to the purchase price, people also need to remember that there are costs associated with their purchase such as stamp duty, solicitor’s fees and local taxes. Allow 10 per cent plus over the purchase price when buying in Spain, she adds.
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Finding the cash
So how do you fund a purchase? You can raise capital on your existing home in Britain, as long as you have enough equity in the property, through your existing lender or by remortgaging.
Or you can secure a mortgage on your foreign property, using a lender based in that country. In many countries, loans are available for just 70 per cent of the property’s value, so you will need a deposit. Using a foreign lender, or overseas arm of a UK lender, should mean a better interest rate than in the UK – compare 6.25 per cent for a sterling mortgage in Spain, says Conn, with 3.75 per cent for a euro mortgage. You can also offset rental income in euros against mortgage payments.
Perhaps the biggest advantage is that the overseas lender will do its own checks on the property, adds Conn, as it would want to ensure that a proper legal title existed, that the property is registered in the buyer’s name and that a valuation takes place to check that other issues such as proper planning permissions and building licences are correct. Investments in the sun or in ski resorts can be winners, say experts, as long as you do your homework first.
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