Sam Dunn: 'Is now the time to gamble on the Spanish property market?'

House Doctor

Question: Sorely tempted by the rock-bottom prices for flats and villas thanks to the Spanish property crash, we recently saw a three-bed flat close to the beach on Costa Blanca for an incredibly cheap €49,500 (£44,000). I know we should be ultra-cautious with the vagaries of Spanish property law but, with prices so low, do you think can we afford to take a bit of a gamble here?
LS, Sussex

Answer: That deadly cocktail of sun, sea and sand never fails to work its magic on Britons abroad – and, seemingly, it always goes to the head quickest in Spain. Tales of starry-eyed visitors drunk on the climate and good living who later invest in a Spanish property only to come horribuly unstuck are two-a-penny.

Sadly, buying a home in Spain has long been shorthand for misery: opaque property rights, shoddy quality buildings and mind-bending legal complexities can all-too-easily conspire to catch out even the most well-researched purchase.

One of the most notorious pieces of legislation – the Ley de Costas or "coastal law" – amounts to a de facto nationalisation of the whole Spanish coastline. Brought in to prevent the coast from falling prey to overdevelopment and private residential buildings, its rules determine that any beach or shore-front belongs to the public.

Nothing too controversial there, you might think, but in practice, it means a home could be taken off you without any compensation: several thousand Britons have already been caught unawares by this.

Remarkably, in the province of Alicante, the Spanish government has taken 20 years to work out public and private ownership of land along just half of the coastline there – leaving more owners in jeopardy every year as they learn if their home is deemed to be on private or public land.

"Clear, watertight and independent legal advice should be sought at every stage to help run through all the property contract details," warns David Hollingworth of broker London & Country. And that's just the start of it.

Prices for Spanish properties may have plummeted over the past 18 months but don't forget that the pound has also weakened against the euro, making it more expensive to buy.

"The price Spanish properties has begun to stagnate which is good news for prospective buyers as sellers [are] discounting their asking prices to secure a sale," says a spokesman for agent Homes Overseas.

Yet it's how you pay for such a property that will likely be the most important financial factor.

If you plan to raise finance in Spain to purchase the property, there are fewer lenders to choose from than a year ago, says Miranda John, of Savills Private Finance International.

"Spanish banks have restricted their lending and maximum loan-to-values have fallen, so expect to pay a deposit of between 30 and 50 per cent," she warns.

Alternatively, says Hollingworth, you could tap into equity in your own home in the Britain – if you have some – and remortgage here in order to buy the flat outright.