Buying a home abroad is no longer the elite activity it used to be. According to new figures from The Office for National Statistics (ONS), the number of Brits who own a second home abroad soared by 45 per cent between 1999 and 2004. This means that at least 257,000 people because there are probably many more who havent declared now own a second home abroad.
Following the trends
Its no surprise that British buyers look towards the sun first and that the most traditional locations of all Spain is still the most popular. According to the ONS around 70,000 property investors just over one in four overseas buyers own a holiday home there. However, recent years have seen an increased interest in more far-flung parts of the world.
Mark Bodega, marketing manager at foreign currency broker HIFX, which specialises in transferring funds abroad for overseas home purchase, says: The path to a new location is often trodden by investors first. Those looking for their own holiday or retirement home follow afterwards, when the infrastructure has been set up and the flights to the destination are cheaper.
To give an example, HIFX has seen an increased interest in Dubai and Bulgaria over the last year, with sales rising by 60 per cent and 77 per cent respectively. This year the new emerging hotspots for investment purposes are Brazil, Canada and Thailand, although the majority of holiday-home buyers still go in for more traditional choices.
The financial nitty-gritty.
In recent years British homeowners have found themselves sitting on more equity in their UK properties than ever before. Ten years ago, at the beginning of 1996, the average UK home was worth £51,367. According to the same figures from Nationwide Building Society, in January 2006 this figure rose to £158,478 an increase of nearly 209 per cent.
Thats why the preferred route of buying foreign property is to draw equity from your own home and pay cash, says Nick Gardner, director of broker Chase De Vere Mortgage Management. Many lenders will allow you to draw up to 90 per cent, sometimes 95 per cent, of the value of your property in the UK and use the equity for any purpose. So if you have a property worth £250,000, you could potentially remortgage and release up to £237,000.
Overseas mortgages.
If you do not have equity in your property or simply would prefer not to use it, there is always the possibility of taking a mortgage out secured against your home abroad. For security reasons, many mainstream UK banks or building societies only lend on property on UK soil. But there are firms at home that specialise in arranging overseas mortgages such as Conti Financial Services. We have contacts with local lenders in 30 countries, says director Simon Conn, and will also arrange lawyers and home and travel insurance. Charges levied by Conti for arranging the mortgage will depend on the country you buy in. The maximum charge generally levied on less popular countries will be 0.75 per cent of the loan.
Alternatively if you are buying in Spain and feel more comfortable with a familiar brand of lender look at Halifax, Abbey and Norwich & Peterborough Building Society, who all operate subsidiaries there. N&P only lends on property in the Costa del Sol, Costa Blanca and Almeria.
Borrowing in a different currency.
Many foreign banks offer the choice of lending in their home currency or an alternative like Sterling or US dollar. But borrowing in a different currency brings additional risks, warns Gardner. If you bought property with a euro-denominated mortgage and the Euro strengthened against the pound, the size of the loan would become larger in sterling terms and could mean sharp rises in your monthly repayments. He adds that another effect would be to eat up any equity made in your foreign home. Most countries will allow you to borrow in Sterling although according to Conn, this is still difficult to do in France.
Transferring funds abroad.
Some overseas buyers, however, cant get around the fact that property must be bought in the countrys own currency and this attracts fluctuation risks on a daily basis. The South African rand, for example, fluctuates by as much as 8.65 per cent in one month. Over the typical eight weeks it can take for the transaction to complete, this could result in real terms in the property effectively costing a buyer far more than originally agreed.
However, you can mitigate currency risks by taking a forward contract with a foreign currency broker (see contacts box). This allows you to buy now when the exchange rate is good and pay later. As a rule, independent foreign currency brokers will also offer you a better exchange rate than a bank and levy fewer charges. This becomes especially important if you are making several transfers known as stage payments if required on a new-build property.
Legalities.
But if property looks cheap, steaming in and signing up could cost you a lot more than the price tag, as there can be issues with the title and registration of the property. In Northern Cyprus, for example, disputes about property ownership still run deep caused by events in 1974 when the Greeks were forced to abandon their homes after the Turks invaded the north. This third of the island is still regarded by some as stolen land. Watch out also for this problem in Croatia where, since the civil war, titles of properties have been fraught with problems. And in Dubai, foreigners cant legally own a freehold, says Conti. It is crucial to seek advice from an English-speaking lawyer.
