A maison d'être for Brits in Biarritz

Sam Dunn meets five friends who found an affordable way to invest in a French holiday home
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The Independent Online

Throw together five old friends with £10,000 savings each, an appetite for DIY and a ramshackle house in France - and what do you get? The answer is an investment gamble based on trust and, at the very least, a year-round holiday retreat for the owners, with surf in the summer and skiing in winter.

"The potential benefits seem to be overwhelming," says Jacob Lester, one of the partnership ploughing their capital into the roomy townhouse near Biarritz, in south-western France. "My stake is one 20th of the cost of a flat in north London and the same price as a new car."

The house lies on the outskirts of the town and cost €50,000 (£35,000), including tax and stamp duty. The cost of renovation, plus a further €4,000 in legal fees, will bring the total bill to somewhere in excess of £50,000.

Before they pooled their cash, the group agreed on a number of criteria: that the investment returns should match (or outperform) either a mini-cash individual savings account or the benefits from paying off part of a UK mortgage; that the property must be close to the Spanish border and a short drive from the airport; and that there should be both a beach and a ski resort nearby.

According to the financial data provider Moneyfacts, the best no-notice mini-cash ISA currently on offer is from Kent Reliance building society, paying 4 per cent a year on balances from £1 to £3,000.

Mr Lester, 34, and his fellow investors are hoping for a rental yield of at least 6 per cent a year for the next few years, as well as capital growth on the property itself. The renovation will divide the house into two flats, each with four rooms and a bathroom, which should help to boost the future rental income.

"The £10,000 is a fair chunk but not a life-altering loss if things don't work out," says Mr Lester. "We were all receiving low returns on our money from UK banks."

The average house price in France has risen by 6 per cent a year for the past three years, according to figures from Abbey National France's mortgage service. Although this compares unfavourably to the UK - where annual house price inflation is at 12 per cent - some parts of France popular with British second-home buyers have seen a much greater increase.

Andrew Barnes is director of The French Property Company, which operates in Pyrénées-Orientales, the coastal region in the south-east of the country. Here, he says, property prices have surged by 20 per cent a year since 1998 - though not to the sort of level that has priced Spain out of the market for British buyers.

In general, adds Mr Barnes, "France has lots of areas people can focus on. It's quite affordable."

The boom in low-cost air travel from the UK, with regular flights to lesser-known airports, has fuelled house price growth across France. But that said, prices are still comparatively low compared to the UK, and with interest rates of 2 per cent in euroland and the ability of British investors to release equity from their main home, the growth in demand isn't surprising.

Mr Lester and his friends say they chose France over Spain after cost comparisons - property prices, legal and registration fees, stamp duty and taxes - and because France offered a greater choice of renovation properties.

The group's competence in French also helped with such matters as translating the property contract. Since they bought the house outright, they had no mortgage hassles. But, as part of the drive to keep a lid on costs, they decided to put the house in one person's name, thus avoiding the expensive legal fees involved in group ownership.

Well aware of the potential this creates for a messy financial falling-out, the group has drawn up a contract to protect each person's stake. The capital used to buy the property is locked up for at least three years; no one can sell their share before then.

The group also saved money by avoiding agencies that translate legal documents and negotiate with estate agents, which would have added 20 per cent to the overall cost. But the most significant savings have come from their decision to renovate the property themselves. An accomplished handyman, Mr Lester spent three months working on the house.

"Although we had heard of many Brits who export materials from home to do up their French properties, we purchased everything we needed in France," he says. "Prices for fittings - things like toilets, taps and sinks - are much cheaper than in the UK, and we found staff in DIY stores to be very helpful."

Go south, and prices head north

France remains one of the most popular countries for Britons buying a second home, either for their own use or for holiday lets.

The most desirable part of the country is the sun-soaked Côte d'Azur; nearly a third of all house purchases by Britons buying in France are made in this region, according to Abbey National France's mortgage service.

But the price of an average property on the south coast (€332,000 or £230,000) is relatively steep for France. In Brittany, in the north-west, you shouldn't expect to pay more than €111,000 for a decent-sized house.

Regardless of where you buy, you must do your homework before investing in France. An accountant or tax adviser with experience of this market can explain the process and guide you through the costs involved.

While it is undoubtedly useful to have an airline flying from the UK close to where you want to buy, remember that routes can easily be scrapped. Check that the property is reasonably accessible by road and rail.

Expect to pay up to 10 per cent of the asking price upfront as a deposit, and be prepared for the process to take three to four months from the acceptance of an offer to completion.

The currency in which you take your mortgage out will depend on your attitude to risk and whether you want to rent your home. In that case, you also need to decide whether your tenants will be local residents or other Britons.

If you're renting to locals, a euro mortgage will make life easier and cheaper, says Mike Boles of Savills Private Finance International. If you want to rent to British holidaymakers, it is usually better to opt for a sterling mortgage. Be aware, however, that this will leave your repayments exposed to exchange rate fluctuations.