Passport to a home: the first rung of the ladder is a hacienda
With the domestic housing market in chaos, Esther Shaw sees how to join the ranks of overseas buyers
Sunday 10 August 2008
Everywhere you look in the UK property market, you see misery: tumbling prices and transactions dropping off a cliff. Normally, this would have prospective first-time buyers rubbing their hands with glee – ready to jump in and snap up a home at a far lower price than they could have hoped for in the recent past. However, there is a big problem: the credit crunch.
Nearly a year on from the Northern Rock affair, the mortgage options for first- timers are more limited than they have been for a generation, as lenders insist on substantial deposits and offer more expensive deals. The conclusion of many experts is that the UK property market will be in a mess for a long time to come.
As a result, reports foreign exchange specialist Moneycorp, nearly 50 per cent of new buyers are now putting their hopes in property abroad.
"As lending criteria tighten, first-timers are turning to foreign shores to live their investment dream," says Moneycorp spokesman Marc Morley-Freer. "Our research shows that more than four in five think their money will go further overseas. That so many buyers are prepared to get their first taste of home ownership in a foreign land speaks volumes for the state of today's domestic market."
Miranda John, foreign property specialist at broker Savills Private Finance International, adds: "With property prices falling faster in the UK than elsewhere in Europe – except for Spain – the Continent may be seen as a safer place to buy because declines are less likely." In short, buying abroad is seen as a defence against falling into negative equity.
It's not just Europe: many first-timers are now looking to the US, and even Australia, to secure what could be a lucrative investment.
While some people buying outside the UK are looking to start a new life abroad, many are letting their new properties out. The hope is that this income, along with a rise in the price, will allow them to build a deposit for a UK home.
So where are overseas house-hunters opting to buy? Moneycorp says Spain is still the number-one choice, even though it has gone through its own property crash in the past couple of years. France is in second place. "These two countries are popular because they are easily accessible from the UK and people have gone there on holiday," says Mr Morley-Freer.
The US ranks third, according to Moneycorp, as Brits look to take advantage of the weak dollar, while Australia and Italy also make it into the top five.
Bur Ms John warns that "the bottom has fallen out of the Spanish market", citing a huge oversupply. "Elsewhere, prices in France remain strong – particularly in the South and the Alps – while in Italy there are some cheaper options in Calabria and Puglia."
And there are some real bargains, she adds, to be found in the US. "Prices have fallen considerably and the exchange rate is very favourable."
Demand is also growing for property in Eastern European countries, according to Paul Plewman from currency specialist Travel- ex. "First-timers who can't get a mortgage on a UK home are picking up more affordable properties in Bulgaria, Hungary and Poland."
All this may sound appealing, but you must do your research before making such a big decision.
"Price increases and rental returns abroad may look good on paper, but buyers need to approach with caution, and particularly if they are relying on rental income to make their investment work," says Mark Bodega from foreign exchange broker HiFX. "Also bear in mind that while you can get a lot more for your money in other parts of the world, cheap is not always best. Think seriously about what you want from the property in terms of capital growth or rental income from letting it as a holiday home, say."
When it comes to financing the purchase, be aware that many UK mortgage providers will not offer loans on properties overseas – often because they regard foreign markets as being too risky.
Abbey, though, offers a euro mortgage for people buying property in Spain. Customers can arrange to open a Spanish bank account for their payments via Abbey's parent com-pany, Santander.
One of the easiest ways of obtaining a mortgage to buy overseas is to use a broker based in the UK but with international expertise. The broker will aim to source the right deal for you – using an overseas lender for the funding.
Arranging the transaction yourself from the UK can be a logistical and linguistic nightmare, since you will have to liaise with a lender in the country where you are buying.
At present, mortgage rates on the Continent are lower than in the UK. And while the credit crunch has hit mainland Europe as well, overseas lenders have always been more cautious anyway. They tend to want bigger deposits – 20 per cent is typical – and have strict affordability criteria.
When sorting out the finance for a new property, ensure the mortgage details are stated in a contract and that you have an "opt-out" if the loan is not agreed, which will ensure any deposit is refunded. Arrange the loan "in principle" before you agree to purchase the property, or before you sign any contracts and hand over your deposit.
Those who opt for a home loan in a foreign currency always run the risk that a major weakening in that currency will increase the cost of their sterling repayments, as well as devaluing their new investment in bricks and mortar.
The currency risk applies equally, says Mr Plewman at Travelex, if you pay for a foreign mortgage in sterling: "This can lead to wide variations in outgoings as the exchange rate fluctuates from month to month.
"To avoid these extra costs, we urge overseas buyers to consider locking into an exchange rate – in a process known as 'forward contracts'."
It's worth making use of the services provided by one of the currency brokers. Generally, the exchange rate will be better than at a high-street bank and you will be offered forward contracts that fix the rate for up to two years in advance so you know exactly how much you are paying each month.
Finally, always consider the fees and costs when buying abroad, and bear in mind that these can vary from country to country. Moneycorp has found that Britons spend more than £19,000 on "hidden costs" because they don't take taxes, legal fees, bank charges and other expen-ses into account.
'We feel we've got a lot more for our money in France'
First-time buyers Oliver Richards and James Nunn, both from London, bought their first property together in France earlier this year because they were worried about the state of the British housing market.
Using overseas mortgage specialist Baydonhill, the pair paid €300,000 (around £240,000) for a ski chalet in the French Alps. To purchase the property, which sleeps six people, they had to put down a 15 per cent deposit.
"We knew there was no way we could afford a place in central London," says Oliver, who works as a strategy consultant and currently rents in Chelsea. "The UK market looks pretty gloomy at the moment and we were concerned about ending up in negative equity."
Oliver and James, a surveyor, now plan to use the property as a holiday home, and also to rent it out to friends and family for rental income.
"We are both keen skiers and chose a place high in the Alps that you can ski right up to," says Oliver. "In an ideal world, we would have bought our first home in the UK, but we just couldn't afford to.
"While we had to put down a large deposit, we feel we have got a lot more for our money in France, and that the place has great potential for growth. We hope we can make a good return on our investment and buy in the UK later."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
- 1 BBC told new political editor must be 'impartial' with Nick Robinson reportedly stepping down
- 2 Number of young homeless people in Britain is 'more than three times the official figures'
- 3 Humans of New York image of crying gay teen receives best response yet from Ellen DeGeneres
- 4 The map showing the most dangerous tourist destinations in Europe, according to the Foreign Office
- 5 Swedish minister gives strongest case yet on why EU should stop turning away asylum seekers
More Britons believe that multiculturalism makes the country worse - not better, says poll
Nathan Collier: Montana man inspired by same-sex marriage ruling requests right to wed two wives
Greece crisis: IMF was pushed around by Angela Merkel and Nicholas Sarkozy – and now it is being humiliated
Forget little green men – aliens will look like humans, says Cambridge University evolution expert
Girl, 7, stares down hate preacher at Ohio festival with pro-LGBT rainbow flag gesture
Osborne to cap family benefits at £23,000 – announced ahead of his post-election Budget
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.