Having a property abroad strikes many of us as a great lifestyle opportunity, but a growing number of UK first-time buyers looking overseas are more interested in sidestepping Britain's challenging property market than the lure of sun, sea and sand. The UK market is struggling, but remains out of reach for many would-be buyers. Exhausted by trying to scrape together the funds and second guessing the market, first-time buyers in their droves are turning further afield to satisfy their property investment aims.
Most buy to let, while remaining as tenants in the UK, hoping that the money they make on rental can be ploughed back into a deposit for a UK property. Around half of first-time buyers now say they would buy abroad to be able to get on the property ladder, according to financial comparison website, Fairinvestment.co.uk. The number of new buyers prepared to think globally about property has doubled in just 10 months, the site suggests. "First-time buyers are being driven to sunnier climes for a route onto the property ladder as a result of the credit crisis which has been shaking the foundations of the UK property market," says James Caldwell, director at Fairinvestment.co.uk.
"Overseas they can sometimes find cheaper property prices and a lower cost of living, which could make buying their first home more affordable, while they continue a high quality of life. This growth in the number of people willing to buy abroad is probably not a coincidence, as debt levels are rising and there has been a shortage of property in this country which has pushed prices up in recent years," he adds.
Would-be new investment owners seem more adventurous than their holiday home-buying predecessors. While some stick to the well- known stomping grounds of France and Portugal, Eastern Europe and the Far East are attracting many new property investors.
According to Rightmove, an apartment with a sea view in Albania will only set you back around £37,000 – far cheaper than in other Mediterranean countries. Egypt is also becoming popular, the website has found, where a coastal property can start from around £12,000. In Malaysia, where steps have been taken recently to open the market up to overseas investors, homes in Kuala Lumpur start from around £40,000.
In Thailand, the market is largely split into luxury property, where an exclusive property starts from £200,000, and the lower end of the market where an investment property could start at around £20,000.
If you fancy cashing in on the weak dollar and the struggling US property market, where many prices have fallen by over 30 per cent in recent months, a property in New York State might start at around £20,000. With a larger budget, the Caribbean, closely linked to the US dollar, could offer an investment hotel room from around £100,000.
"There are many uncertain markets overseas where price adjustment is more advanced than in the UK," says Miles Shipside. "So there could be opportunities to pick up a bargain. Spain and the US are well-known examples of stressed markets, where there will be distressed sellers, both private and developers , who need to offload property quickly. But be wary of buying something that is still being built as many developers are just walking away with the job half finished." It is also important to know when to buy, he warns. "If first-time buyers find it hard to read the UK market, can they really hope to read a market in a country they are not as familiar with?"
Aside from market performance, other potential pitfalls are significant, and issues ranging from ownership law to currency exchange could have a very serious impact on your money. "Property prices may seem cheaper overseas, making it easier to get on the property ladder, but anyone buying abroad should approach with care," Melanie Bien, director of independent mortgage broker Savills Private Finance, says. "The biggest risk is a currency one if you are paid in Sterling but have a foreign currency mortgage. If the Euro weakens then your investment is devalued. If you are opting for an overseas property in order to enable you to get on the property ladder in the UK eventually, currency fluctuations may wipe out all the good work you do." Setting up a local bank account is strongly recommended.
Those in the know constantly urge overseas buyers to do exhaustive research into the local, national and international implications of buying abroad. "There are horror stories of people buying bargains overseas only to find they can't get planning permission or even don't actually own the property at all," says Louise Cuming of Moneysupermarket. "It is crucial that you understand the local property ownership systems, taxes and charges. And, if you are trying to cope with being a landlord at such a distance, you will need a local agent you trust." Buyers should only deal with estate agents who are registered and hold a licence, and employing a solicitor who is fluent in the local language and English is essential.
If all this hasn't put you off, getting a mortgage regardless of whether you are a first timer buying at home or abroad remains a challenge, but on the international front things may be gradually getting easier. "Historically, getting a loan for an overseas property has been more difficult than one for the UK," says Cuming, "but a number of the big banks now have an international presence and are more in tune with the international markets."
Although first-time buyers going abroad will probably be regarded as a higher risk, lenders such as Halifax, Abbey and HSBC could be worth approaching, Cuming says.
"But if you are really struggling to buy in the UK, a better option may be to consider the Open Market HomeBuy schemes," suggests Bien. "Because these have been opened up to all first-time buyers with a household income of £60,000 or less, you may find that you can get 100 per cent funding so have no need for a deposit."
Getting around the red tape
In the EU you can take comfort in the fact that by law you must be treated in exactly the same way as the locals when it comes to rules, regulations and tax. But that doesn't mean you escape certain nuances of local legislation. For example, if you buy property in Spain, the debts racked up by the last owner can be passed on with the property to you. Outside the EU, in Croatia, for example, you have to get permission from the Ministry of Foreign affairs – which can take up to a year before you buy the property.
Further afield, if you buy in the US, you may have problems with the number of days a year you can rent out your property depending on the state. In South Africa, you have to declare any money you bring into the country with the South African Reserve Bank before you can get buying. What happens if something goes wrong during the purchase process? Be clear on the rules on deposit refunds and a developer walking off a planned project before your property is finished.
The National Association of Estate Agents, which now incorporates The Federation of Overseas Property Developers, Agents and Consultants, offers buyers and sellers advice on overseas property at www.fopdac.com, and the local British embassy or consulate may also be able to help. And then there are the taxes. If you live and pay tax in the UK you must declare rental income from overseas property lettings on the foreign pages of your tax return. If you pay foreign tax on the income, you can usually get credit for this against the UK tax you have to pay on it. If you sell the property you may well have to pay tax on it in that country, and you may also have to pay UK Capital Gains Tax, though again, you can usually get credit for foreign tax you've paid on the same gain. Does your country of choice have a double taxation agreement with the UK? If not, you could face double sets of taxes such as IHT. The government offers more info on the UK side of overseas property taxes at www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/TaxOnPropertyAndRentalIncome/DG_10013347Reuse content