'Jet to let': the new way for first-timers to get on the ladder

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The Independent Online

First-time buyers Chris Powell and Lesley-Ann Cassar, both in their thirties, are weeks away from getting on to the property ladder. Their excitement is understandable: they have secured a one-bedroom apartment for a stunning £45,000 price. Its location? Cape Verde, 300 miles off Africa's west coast.

"There was just no chance of us affording a place [in London]," says Chris, who rents in Battersea. "With beautiful beaches and good air links, we hope it will give us a good rental return as the island becomes more popular.

"We see it as a long-term investment and also hope it will appreciate in value so we can one day buy a place in the UK."

While buying abroad used to be the preserve of the rich, it now presents an attractive opportunity to those priced out of the domestic market.

"Overseas property offers first time buyers an investment they could never have afforded back home," says Mark Bodega of foreign currency broker HIFX.

While some first-timers are simply starting a new life abroad, most are "jet-to-letters" who rent out their properties for income in the expectation that this, along with a rise in the price, will let them build a deposit for a UK home.

Although these buyers tend to go to traditionally popular locations such as Spain, demand is growing for property in Bulgaria, Hungary and the Baltic states of Latvia, Lithuania and Estonia.

Mr Bodega says the best investment potential is offered by new entrants to the European Union, such as the Czech Republic and Slovakia. "The national economies of these countries will probably rise, so investors can expect reasonable increases in capital values as well as good rents."

House price inflation, he adds, has been high in Prague (20 to 30 per cent each year between 2001 and 2003), Budapest (10 to 15 per cent in 2004) and Slovakia (15-20 per cent each year between 2004 and 2006).

Many first-timers are also looking at far-flung places such as Canada and Australia.

However, Mark Chilton from broker Purely Mortgages has a warning for those looking to buy overseas: "It's a big risk as you are gambling on capital appreciation. First-time buyers are the least experienced and least equipped buyers in the mortgage market. Making such a big investment decision requires careful research."

Many mainstream UK lenders won't offer mortgages on foreign properties because they see foreign markets as too risky. Specialist firms such as Conti Financial Services have stepped into the breach.

One of the biggest concerns for buyers is currency risk - being paid in pounds but borrowing a loan in euros or dollars. "It typically takes eight weeks to complete a purchase abroad and currencies can fluctuate dramatically," says Mr Bodega.

For example, a property bought on 1 March 2006 for €250,000 would have cost £167,836. By 5 April, the same place would have cost £175,523 - after the euro rose against the pound.

However, for a fee, you can mitigate this risk with a "forward contract" from a foreign exchange broker - allowing you to buy in the required currency now (with a deposit) but pay for it later.

At least euro mortgage rates are currently cheaper than sterling ones, says Melanie Bien at broker Savills Private Finance - although a bigger deposit, at least 20 per cent, is usually needed.

Always allow 10 per cent of the purchase price for associated costs such as fees and taxes.

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