Print friendly version 14 May 2008

Broadening your horizons

In part one of our series on buying abroad, Kate O’Raghallaigh examines those property markets that prove popular with Brits

We may be facing one of the hottest summers in living memory, but that doesn’t stop people from casting their eyes overseas. For many Brits, buying property abroad provides the perfect way of combining business and pleasure – by making an investment that they can themselves enjoy in the summer and winter months.

According to Overseas Exchange Bond, which provides buyers with an alternative to making a cash deposit for property, British and Irish residents currently own as many as 3.81 million homes abroad. Furthermore, this number is expected to rise by 8-10% over the course of 2008. Simply buying a holiday home abroad is not the only avenue open to buyers either – according to research from Fair Investment Company, 44% of first-time buyers in the UK would consider buying their first property abroad and 8% have already done so.

“First-time buyers are being driven to sunnier climates for a route onto the property ladder as a result of the credit crisis that has been shaking the foundations of the UK property market,” says James Caldwell, director of Fair Investment Company.

“Overseas, they can sometimes find cheaper property prices and a lower cost of living, which could make buying their first home more affordable while they continue a high quality of life. This growth in the number of people willing to move abroad is probably not a coincidence, as debt levels are rising and there has been a shortage of property in this country, which has pushed prices up in recent years.”

Hotspots

Some of the big names in European property markets, at least in terms of their long-standing popularity with Brits, are Spain, France and Italy. Recent figures from foreign exchange specialists HiFX show that France and Spain remain the destinations attracting the most enquiries from Brits, with France attracting 26% of all enquiries for January 2008, and Spain accounting for 22%. France, of course, has the added advantage of being both a winter and a summer destination, as it boasts better weather than the UK in the summer, as well as some of the most popular skiing destinations in Europe.

With regards to the mortgage market, European countries offer both fixed and variable rates and, according to Jane Ayliff, head of international mortgages at HiFX Mortgage Services, most have not cut back on the amount of available mortgages, such as is the case here in the UK. She adds: “Spain, however, is the exception. Loan-to-values (LTVs) have been lowered somewhat, but borrowers can still expect to get 80% with relative ease.”

Borrowers should be prepared for stricter policies in terms of proving their income, says Melanie Bien, independent director of brokerage Savills Private Finance. “Overseas lenders can be quite strict regarding proof of income, so earned income, pensions, investment and rental income may all be taken into account. Most lenders require a minimum deposit of 15 to 20%”

The market

In terms of the actual products available, although they vary between countries, competitive deals can be found. Ayliff continues: “Fixed and variable rates vary from country to country, but in some cases, the fixed rates are better than the UK’s offering. For example, in France at the moment, one of the better deals available is a five-year fixed rate at 4.55%, while Spain has one at 5.34%.”

Mortgage rates in Europe are priced using the Euro Interbank Offer Rate (Euribor) and there are three variations to this rate that lenders use to price their products; monthly, three monthly, and 12 monthly. For example, a lender could offer a deal of three monthly Euribor plus 1%, or a monthly rate plus 0.5%. However, Ayliff warns: “Watch out for deals that use the monthly Euribor, as this means your payments can change every month. The same should apply to the 12 month rate as, if it is quite high, you are stuck with those repayments for at least a year.”

The big players

According to Ayliff, the Spanish market is the one facing the most difficulties at the moment. She explains: “The credit crunch has had a global effect in terms of affordability, but Spain has the added issue of being susceptible to falling property prices. Property prices at the moment are undergoing a major correction.”

The legalities surrounding property purchases obviously differ across the EU, so it is always important to seek independent expert advice from someone with experience of the market in which you wish to buy. For example, if you are considering buying in Spain don’t make the mistake of assuming the notary (the legal professional required by Spanish law to oversee the signing of all documents) will identify unfair clauses or mistakes in any contracts you have to sign. In fact, the notary’s sole purpose during the process is simply to witness the signing, rather than look after the client’s interests, so a solicitor really is a necessity.

The French market is a lot more heavily regulated and, as a result, there is a lot more paperwork to be filled out. “Borrowers can expect to be asked to provide six months’ worth of bank statements, as well as proof of employment and earnings. As for the Italian market, it has a reputation for being slow, and there are a few areas, such as Calabria, in which lenders are not willing to lend to foreign applicants,” says Ayliff.

Research

Research is imperative, however many people may feel more at ease in the hands of a specialist broker, says Ayliff. “Certain markets, in particular Italy, are difficult to navigate without intermediary help, so don’t rule out using a mortgage broker, as they will also be able to sort out the documents in translation, which could catch you out if you don’t know what you’re doing.”

Savills Private Finance’s Bien, adds: “When buying abroad, you should consider extra costs above and beyond the purchase price of a property. In France, for example, estate agents can charge the buyer a fee, which can be as much as 5% of the sale price, so check before making an offer and calculating your budget.

“Don't forget legal fees, which can be anything from 3 - 10% of the value and make sure you have a survey to uncover any structural problems with the property. While viewing properties overseas may pose practical problems, it is vital you see what you're buying before making an offer. So take time to make sure an exciting decision is also the right one.”

Buying a property, whether at home or abroad, is unlikely to be entirely stress-free. Dedicated research is even more important when negotiating a sale in another country and, presumably, another language. If you have your sights firmly set on buying a property in the sun, just don’t let the dream cloud your judgment.

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