Grab a slice of the American dream while it's still cheap
House prices are tumbling in tourist hot spots in Florida, but there are still potential pitfalls for buyers from the UK. Laura Howard reports
Sunday 04 July 2010
Today in 1776, the United States of America signed a declaration of independence from the Kingdom of Great Britain. But 234 years later the two countries are still inextricably linked.
The effects of the 2007 credit crisis, which was triggered by subprime mortgages in America, are still rippling throughout the UK. And, as unwritten economic laws state that the UK's housing market is six months behind that of the United States, recent figures from the US Commerce Department won't make pleasant reading. They reveal that sales of American homes fell by 33 per cent in May to a record annual low of 300,000 as President Obama's homebuyer tax credit recovery measures came to an end.
A glut of homes on the market is putting further downward pressure on property prices. The average US home is now worth $164,600, according to data from the Realtors (estate agents) group, compared with its peak of $230,300 in July 2006. And experts are forecasting further price drops of nearly 4 per cent this year.
Simon Pyle, the sales manager at UK-based property agent Countryside International, which specialises in Florida homes, said that price falls have been unprecedented. "In Cape Coral, Florida, for example, four-bed condos that were worth $800,000 four years ago are being marketed for as little as $200,000 under a 'short sale' agreement with the bank. This is the step before the more expensive route of foreclosure (repossession) where the bank just claws back as much money as possible."
Clare Nessling, the operations director at overseas mortgage broker Conti Financial Services, says: "We know of a two-bed property in Orlando being sold for $65,000, when in 2006 it was priced at $210,000 – and new homes are being sold for less than they cost to build."
But rock-bottom prices could present the perfect opportunity for Britons to invest in a holiday home on the other side of the Atlantic – especially as, triggered by the recent emergency Budget, the pound has started to reclaim strength against the dollar. Currently £1 is worth $1.50 compared with $1.35 in January. The US is the fifth most popular country for Britons to buy an overseas property, according to data from Conti – up from seventh this time last year. The top four spots are occupied by France, Spain, Portugal and Turkey.
Most Britons buy in Florida which – so long as the accommodation is within an hour's drive of Disney in Orlando – means a year-round rental opportunity. Orlando, which is also home to SeaWorld, Universal Studios and Epcot, receives an estimated 45 million visitors a year. "As only about four million of these are British, there is a constant stream of domestic tourists, which makes renting your property as feasible as it gets," says Mr Pyle. You may also be able to offset mortgage interest payments and other expenses against any rental income.
However, while tourists may be in steady supply, there are restrictions when it comes to the frequency at which you can rent out your home – and this will vary according to which of the four counties surrounding Disney your property is situated in.
"In Orange County, for example, there is a blanket restriction on short-term rentals of less than three months," says Mr Pyle. "So if you rent out the place for two weeks, it will be another two and a half months before you can rent it again, which is no good if you are looking for regular income. It's important that you find out about rental restrictions before you buy."
But in spite of apparent favourable conditions, there is no stampede of British buyers. "Compared with just two years ago, British buyers of American property are down by more than 70 per cent," says Mark Bodega of currency exchange specialist HiFX. "Those remaining are cash-rich investors who can afford for property prices to fall at least in the short term."
If you need a mortgage, don't expect plain sailing. In theory, there are no restrictions to foreign nationals owning property in the US so long as you can put down a minimum 30 per cent deposit. Interest rates on US mortgages are also still reasonable; a variable deal will cost 4.5 per cent and a three-year fixed 5.5 per cent, according to Conti. However, your total existing UK liabilities, such as mortgage payments, credit cards and even school fees, must not exceed 38 per cent of your gross monthly income in order to qualify for a loan.
Even if you can meet these stringent criteria, lenders are simply fussier these days, says Melanie Bien, a director at brokers Private Finance. "It is much harder to borrow in the US than it was before the credit crunch. Lending criteria are tighter and the maximum amount you can borrow as a proportion of the property's value has also fallen. In many states you will need a deposit of at least 50 per cent."
There are associated buying costs too. For properties bought with a mortgage, buyers should budget for about 4 per cent of the assessed value of the home in taxes and fees, says Mr Pyle. If you are buying in cash, you should factor in between 1.5 and 2 per cent.
If you buy a condo within a development you will also have to pay Homeowners' Association (HOA) fees which cover ongoing expenses such as buildings insurance, refuse collection, garden maintenance, water and cable TV. "For a typical three-bed condo in Cane Island, Florida, HOAs will cost between $300 and $400 a month," says Mr Pyle.
It will cost you to transfer money across the Atlantic to pay for your property, but using a specialist currency broker, such as HiFX, can be cheaper than a high street bank.
"This is especially important if you are buying off plan and need to make several stage payments," says Mr Bodega.
Using a specialist broker also means you can opt to "lock in" your exchange rate. This is a gamble in itself but at least you know exactly what payments are going to cost you in pounds.
In terms of the property itself, it's advisable to buy a new home in Florida, says Mr Pyle, as they will be better equipped to withstand hurricanes.
Mark Bodega, HiFX
The US housing market should be treated with a healthy dose of caution. As well as rising fore-closures (repossessions), other risks include a high unemployment rate and the possible increase in the Federal Reserve rate. Many analysts expect house prices to fall by between 5 and 10 per cent from Q1 of 2010 to Q1 of 2011. This is why returning buyers are the cash rich who can afford for prices to decline.
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 Michelle Watt's father says TV presenter killed herself because she was in constant pain
- 2 Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
- 3 'Help me I'm trapped in a factory' messages keep being found on bottles of vitamin water
- 4 North Korean defector flees to Finland 'with evidence of chemical testing on humans'
- 5 Greek debt crisis: The photograph that conveys the despair of Greece's elderly
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
'I wish the BBC would stop calling it Islamic State' – David Cameron unleashes frustration at broadcaster
Greece crisis: The wider lesson is that it’s time to abandon this failed experiment in currencies
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
iJobs Money & Business
£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...
£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...
£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....
£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...
Day In a Page
Previously two semi-detached properties, this five-bedroom home is spread over three floors with a large breakfast kitchen, orangery, office and gym on the second floor.
This five-bedroom home enjoys countryside views over the Blyth estuary to Southwold, offering flexible living space with a ground-floor annexe - ideal for use as a holiday let.
Close to the market town of Eye, this four-bedroom detached home offers a double-height living room which takes the place of the original, 19th-century, chapel nave.
Dating back to the 19th century, this four-bedroom home needs modernising. Spanning three storeys, the red-brick house has a fireplace, a small terrace and a cellar.
Just outside of Cambridge, this single-storey home offers three double bedrooms, a living room with vaulted timber ceiling and ladder steps that lead to a mezzanine study area.
This six-bedroom Georgian home is on three floors with open fireplaces, a two oven Aga, an annexe, and cottage gardens with outbuildings and a car barn.
A former coach house, Glebe Farm Stable is now a three-bedroom cottage with a double car barn, an attached office, kennels and an outbuilding that's currently used as a gym.
Located beside an impressive Victorian viaduct, this four-bedroom home has an open-plan living area that is glazed on two sides, with skylights and high ceilings.
A former furniture workshop, this three-bedroom home has high ceilings and painted brick walls, in a village setting only fifteen miles from the coast.
This five-bedroom stone townhouse features a pine staircase and an Inglenuk fireplace, double doors from the lounge give access to an enclosed courtyard.
This five-bedroom, detached home blends traditional and modern design; the sleek kitchen features a gas hob and oven set within an exposed chimney breast.
Moored in Chelsea's Cheyne Walk, this houseboat offers two double bedrooms and a teak deck that's ideal for al-fresco dining.
Surrounded by woodland, this five-bedroom manor house has plenty of outdoor storage space in the form of three converted loose boxes, two smaller outhouses and a woodstore.
This six-bedroom home is set amongst three acres of grounds. Currently a large family home, Clift Hill has potential to make a B&B or countryside retreat, subject to change of use permissions.
This Grade II-listed three-bedroom home is situated on a private road, just a short walk from the sandy beaches of Frinton-on-Sea.
Less than five miles from Malmesbury, this four-bedroom cottage comes with equestrian facilities and gardens that extend to approximately three acres.
Spanning three storeys, this late-Victorian five-bedroom farmhouse is a spacious family home with a modern interior and B&B potential.
With an original church arch, this triplex one-bedroom church conversion has a light, spacious, feel and comes with a secure off-street parking space.
This recently-refurbished three-bedroom home has bi-folding doors that lead out to a decked seating area - ideal for alfresco dining this summer.
Well-located for coastal walks and popular restaurants, this detached four-bedroom home offers views over farmland, to the Solent, the Purbecks and Bournemouth.
If you love high ceilings, school conversions like this one are bang on the money. This two-bedroom flat is minutes from Burgess Park and the foodie haven at Borough Market.
Set within a church conversion in Bermondsey, this two-bedroom maisonette combines existing features, such as original arches and brickwork, with a contemporary finish.
In the pretty market town of Bungay, this grade II-listed Mill House is arranged over four floors, offering four bedrooms and three reception areas.
This four-bedroom Edwardian home offers a combination of original features and contemporary design after a renovation by the current owners.
This four-bedroom home offers a vaulted ceiling in a breakfast room that's ideal for summer entertaining with doors that open to the patio and garden.
On the market for the first time in more than 50 years, this six-bedroom home is a project with vast potential - spread over three floors of living space.
This five-bedroom home comes with a range of outbuildings including a large barn which could be converted into a self-contained granny-flat or rental.
Surrounded by rolling countryside, this four-bedroom barn conversion comes with a self-contained, one-bedroom annexe that could serve as an office or a holiday let.
Located near Harrogate town centre, this five-bedroom Victorian terrace is arranged over three storeys while a current study serves as an optional sixth bedroom.
A ground-floor flat in a country house, located a mile from Sway; this two-bedroom home would make an ideal weekend retreat on the edge of the New Forest.
On a popular residential lane in Caterham on the Hill, this four-bedroom family home offers a secluded garden and a convenient location for local schools and public transport.
Just a short walk from Westerham green, this three-bedroom cottage has a light kitchen with exposed brickwork and double doors that lead to a south-facing garden.
In a prime spot opposite the River Thames, this one-bedroom flat has an 18sq ft reception room with glass doors that open out to a private terrace.
Set in the hills above Llanwrda Village, west Wales, this 18th-century three-bedroom farmhouse has holiday-let potential from a separate barn conversion and annexe.
This charming end-of-terrace townhouse is arranged over three floors, with two double bedrooms and a private courtyard garden located at the rear of the property.
Located in the University area, this semi-detached five-bedroom home is arranged over three floors - there's even a rear garden and off-road parking too.
Only a few minutes' drive from the charming town of Marlow, this two-bedroom home sits on the private riverside estate of Harleyford.
This detached four-bedroom home in Middleyard is arranged over two floors, with features that include a wood-burning stove and bespoke oak staircase.
In a row of eight detached Georgian residences, this five-bedroom home offers views of The Sound, Mount Edgcumbe and Cornwall from its impressive veranda and full-length balcony.
If you love cooking for friends this two-bedroom flat - complete with views of the iconic Battersea Power Station and an open-plan kitchen/dining area - will go down a treat.
Located above Grasmere village, this five-bedroom home is arranged over three floors and offers countryside views across Grasmere Lake towards Silver Howe.
This four-bedroom detached home comes with a double carport, useful workshop, garden and two walkways that offer views of the adjacent countryside.
With space for an equestrian business, a greenhouse for growing your own veg, a wine store and a gym; this five-bedroom home has all the ingredients for a country retreat.
The decked roof terrace of this two-bedroom flat is perfect for summer drinks while large windows and ample storage space make for a light and spacious interior.
Set sail for this four-bedroom farmhouse in Cowes. With five acres of land and an indoor pool, this home oozes character. There is even potential to let a one-bedroom annexe.
Surrounded by approximately 15 acres of grounds, this six-bedroom grade II-listed home has been extensively refurbished yet retains many period features.
This four-bedroom home comes with a two-bedroom cottage and commercial office, with planning to extend, in a stunning courtyard setting.
In a pretty Norfolk village, this four-bedroom family home is surrounded by landscaped gardens, with even a self-contained annex for guests.
A few miles from the seaside at Perranporth, this four-bedroom farmhouse sits amongst nine acres of idyllic grounds - including a lake and two barns used as holiday lets.
This five-bedroom home is arranged over three floors of a converted Victorian hospital, offering spectacular views of the Pentland Hills - only three miles from the city centre.