Buying property abroad has long been an ambition for many investors, encouraged by cheap property prices, romantic notions of retirement abroad or simply a home away from home in sunnier climes.
With the recent economic downturn and tightened mortgage restrictions, however, is now the best time to invest cash in a foreign villa or apartment?
According to leading overseas mortgage provider, Conti, the recent financial crisis hasn’t dampened enthusiasm in the overseas property market. After a slight blip, Conti reports an increase in mortgage applications from the middle of 2010, with the upward trend continuing.
According to a recent report by the English Housing Survey, the Brits have nearly 400,000 second homes overseas. So what is driving the increase in property purchases overseas when Britain has faced one of the worst financial crises in recent history?
Worries over pensions have been credited as one reason for the upward trend. People worried about how far their pension will stretch in today’s world – there seems little doubt now that pensions are likely to be less valuable at the end of their term than predicted – are once again looking to property to safeguard their financial futures. That, and the fact that property prices abroad have hit a low, has certainly provided the encouragement needed to get the market moving again.
But buyers are being savvy in their choices, and the trend for properties means avoiding the up-coming and unproven investment countries, which a few years ago would have been seen as a potential gold mine, and sticking to the tried and tested.
Favourite locations are France, Spain and Turkey, with Portugal and Italy bringing up the rear. These countries are also reported as providing the biggest rental income for British property owners, so they are a comfortable choice, particularly for first time buyers abroad. It’s telling as well that the favourite destinations for potential buyers are those found on the routes of most budget airline companies, which proves that budding investors are displaying more thought than emotion when it comes to the basics.
Property purchasers in the market for a home abroad, whether it’s to live permanently or just for the occasional trip to the sun, would do well to keep on top of the latest trends, which give a good idea of which locations will offer the best returns on your hard earned money.
But buying abroad isn’t as simple as choosing the right house and being happy with the locality. Property is an investment, and to ensure your investment is protected, there are a few obstacles that need to be dealt with first.
Daunting as most mortgage applications may seem when you’re buying a house locally, that can be nothing compared to purchasing a property abroad. There are the currency fluctuations to contend with, the irregular payments in terms of amount, and that’s just if you obtain a mortgage from a UK lender. Choosing to sign with a lender from the country you intend to buy in can create the additional issues of a language barrier and methods of applying, approving and finalising the agreement that are unfamiliar and awkward. It’s no surprise that buyers choose to employ both translators as well as overseas experts to guide them through the gauntlet.
Understanding property taxes and buying costs in the country you plan on moving to is another essential factor in buying abroad. In France, for instance, these costs will depend upon the age of the property and can also vary depending upon the number of people involved in the purchase process and whether it is bought through an estate agent or not. Potential buyers in France could be looking at spending anywhere up to an additional 15% of the original property price. And with inheritance laws in France meaning that property automatically goes to blood relatives, a spouse or partner may look for additional legal security before any purchase goes through.
Buying in the USA, in contrast, means that purchasers can hire the services of an agent, whose costs will ultimately be paid by the seller as per US law, but whilst that sounds like a saving, there are still fees to be paid for a credit report, the property appraisal, completing the loan, mortgage set-up fee, title insurance, pre-paid household insurances and more. The list is complicated and awkward, particularly for buyers not used to the system, so expect to pay an additional 5% on top of your purchase price for these costs alone.
New buyers also need to be wary of any legal restrictions in the country of their choice; in certain areas in Turkey, for instance, foreigners are not allowed to buy property at all. Specialist experts will be able to advise on an individual country’s property laws and are recommended by most independent sources.
Checking title or property ownership is also vital. Internet forums on Turkey, for instance, are rife with claims of dodgy dealings, builders who don’t actually own the deeds to the house they are selling and tragic stories of people who have had their dream house abroad sold from under them. Just as in any other country you wish to buy in, you would be well advised to do due diligence on the legal and financial system, as well as any developers, estate agents and lawyers you are thinking of doing business with.
Clearly, any foray into the world of overseas property purchasing, whether it’s done for personal enjoyment or as a business opportunity, should be undertaken carefully and with consideration, but it’s comforting to see that the experts are still recommending it as a sound financial move. Advice on trends lends itself towards continental property, despite the language barrier, and with experts predicting that the surge in the market will continue to grow it won’t be long before the market prices head in the same direction, proving early investors right.