A fistful of euros and a one-way flight to Faro: Britons fall for allure of the Algarve

Prices are attractive and the exchange rate is favourable. Now could be the time to purchase in Portugal, says Melanie Bien

Hugh and Sue Rayner will have been waiting more than two years by the time they to move into their brand spanking new three-bed, three-bathroom penthouse apartment in Praia da Luz, six kilometres from Lagos in the western Algarve and 200 metres from the beach.

Hugh and Sue Rayner will have been waiting more than two years by the time they to move into their brand spanking new three-bed, three-bathroom penthouse apartment in Praia da Luz, six kilometres from Lagos in the western Algarve and 200 metres from the beach.

But the couple have no regrets about buying offplan at the Estrela da Luz resort, built by the UK-managed property firm Oceanico Developments. When their apartment is completed in March, it will have risen by around 25 per cent in value since they put down their deposit in January last year.

The couple bought their apartment for €320,000 (under £220,000 at current exchange rates) and it is now worth around €400,000. They paid a 40 per cent deposit: 20 per cent when they signed the contract and 20 per cent when building work started. The remainder is due on completion.

"The apartment is a beautiful space, nearly 200 square metres with views of the sea," says Mr Rayner. "We plan to spend four months a year in Portugal, perhaps more, as we are both retired."

The couple, who come from Blackmore, Essex, have been pleasantly surprised at the quality of the building work, as they had heard that Portuguese contractors can be unreliable. They have been over to check a couple of times and are impressed with how things are progressing, although they say some alterations have been made to their apartment that weren't in the original plans.

"The developers decide to do something differently and don't ask you before they do so because you're not there," says Mrs Rayner. "It is only when it is too late that you realise something's been changed."

Despite this, the Rayners are glad they bought on the basis of the architect's drawings, and that they were among the first to do so. "We had the pick of the plots," says Mr Rayner. "And if it doesn't work out, we know we have made a profit and can walk away."

The couple have not yet decided whether to let their apartment when they aren't using it. With access to indoor and outdoor swimming pools, a spa, gym, tennis court, art gallery, café and restaurant, there is plenty to keep holidaymakers occupied.

"We are thinking about letting it out, as rent is quite high in Portugal and it would more than cover our annual costs," says Mrs Rayner.

Around 1.4 million Britons own bricks and mortar abroad, with 150,000 buying in the past 12 months. Portugal is the third- most popular destination after Spain and France, says foreign exchange specialist Travelex. Around 10,000 Britons bought a property there in the past year.

And with a favourable exchange rate, this figure could swell. "For those considering purchasing a home in the euro-zone, now is as good a time as any, as the euro has recently jumped in value after a long-term slump," says Dino Leo, development and relationship manager at Travelex FX for Homebuyers.

"From a low of 1.4242 [to the pound] in January 2004, the euro rose 6 per cent in value to 1.5201 in August. While this represents a saving of only eight cents for every euro purchased, when you look at what's needed to buy a foreign property, that 6 per cent rise takes as much as €12,000 off a €200,000 home."

Many Britons buying in Portugal let their property. The buy- to-let market may be showing signs of saturation in the UK but this is far from the case in the Algarve, where Barclays is opening three new branches (in Almancil, Vilamoura and Lagoa) next month.

The bank has also teamed up with Oceanico to offer a "jet to let" scheme - an exclusive mort- gage for Britons purchasing one of the developer's four- and five-star apartments or villas. Buyers put down a 30 per cent deposit and then pay nothing for the first two years. No interest is charged during this period; you start repaying the capital, plus interest, from year three onwards.

Interest is charged at six-month Euribor (a benchmark for banks in the eurozone) plus 0.75 per cent if you take the mortgage out over 15 years. This gives a current payable rate of 2.86 per cent. If you take your mortgage out over 20 years, interest is slightly higher: Euribor plus 1 per cent.

The minimum loan available is €100,000 if you are purchasing a property; lesser amounts will be considered for transfers and home improvements.

The advantage of letting your property to holidaymakers is that you should be able to generate enough cash to cover your mortgage payments when they become due, says Simon Burgess, director of Oceanico. The firm takes a 25 per cent cut for managing and letting your property.

Occupancy levels are high at this end of the market: research from the Association of Hotels and Tourist Developments in the Algarve reveals that four- or five-star resorts achieve the highest occupancy rates (67 per cent) in Portugal. So one of these apartments could generate 35 weeks of rent each year.

Portugal is attractive to holidaymakers because it is less developed than Spain and just two and a half hours by plane from the UK. Good weather is almost a definite in the Algarve, with 300-odd days of sunshine a year. It's also the perfect destination for active holidays - if golf, tennis or water sports are your thing. Many property purchasers are British so there's a familiar feel to the region as well.

Prices for Oceanico's developments range from €155,000 for a 600 sq ft studio apartment, to €585,000 for a 2,500 sq ft three-bedroom deluxe apartment. But if you don't want a modern, secure, gated property, there are plenty of older houses in traditional villages with cobbled streets that make up a big proportion of the Algarve market.

TIPS IF YOU'RE MAKING YOUR MOVE

* Take out private health insurance; Portugal has a national health service but it doesn't have a high reputation. British nationals are entitled to free emergency medical cover so long as they have filled out form E111. You can get a copy of this from the post office.

* Set yourself a realistic budget allowing for purchase costs such as 15 per cent property tax.

* Shop around for a mortgage.

* Contact a reputable estate agent, preferably with offices at home and abroad. Obtain as much detail as you can about the different areas and prices.

* Plan a property inspection visit via the agent.

* Arrange a meeting during your visit with a reputable lawyer and arrange for him/her to have powers of attorney to act for you in your absence.

* Leave a 10 per cent deposit with your lawyer so that contracts can be exchanged once searches have been completed.

Source: 'The Complete Guide to Buying Property Abroad' by Liz Hodgkinson (Kogan Page).