Property Abroad |
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Go abroad for your second home By Hannah Ricci
Owning a holiday home in the sun used to be seen as a luxury reserved for the mega wealthy. But today more than 800,000 Brits now own a foreign property according to Mintel - up by 45% since July 2004.
The world
The first issue to address is where to buy. "Spain and France remain the most popular destinations, and hence generally the most expensive," explains Denise Blackburn, marketing director at Moneycorp. Despite recent setbacks in the Spanish property market, Blackburn doesn't think this should pose too much of a concern. Portugal is another popular choice says James Robinson at MRI Overseas Property. "Property prices are high in the western Algarve. However, less established areas such as eastern Algarve and the Silvercoast, north of Lisbon are more affordable," he explains. If you really want a bargain though you may have to head slightly further afield. Hot on the heels of the traditional favourites is Bulgaria - its popularity has risen substantially, but property remains affordable. According to MRI Overseas Property the average two-bedroom, two-bathroom property in Bansko will set you back around £81,000, compared to £146,000 on the Costa Blanca and £121,000 in the Algarve. "Other up and coming areas at the moment include Croatia, Montenegro and Morocco," adds Blackburn. Much of Croatia for example, is in development at the moment, with the construction of lots of new apartments. This means some areas are pretty much a building site, but prices reflect this. Despite lengthy flight times the US remains a firm favourite, particularly among families who continue to flock to Florida for Disney Land. "With the pound so strong against the dollar at the moment, and property prices in the US continuing to fall, we are seeing a lot of interest," adds Blackburn. If you're viewing your holiday home as an investment too, it's worth seeking out areas that are on the up, so you can get in before it becomes too popular and prices rise. Look out for new airports and new budget airline routes. Rental potential Renting out your new home can make it much more affordable, providing you choose the property carefully. "For a well-placed property in an established region, you could expect rental income of around £500 to £750 a week for the seven to eight weeks at the height of summer," says Robinson. John Menniss of JVD Properties, bought a holiday home for his family in Javea, Spain in 2004, before purchasing several rental properties and setting up a business to help other Brits buy property on the Costa Blanca. He says it's all about location. "It's crucial to consider ease of access, not just in terms of the regularity and cost of flights from the UK - but also from the airport to the destination," he says. That's why if you are planning to rent out your property, it's vital to consider potential customers needs, not just your own. "You might not mind the 10-minute drive to the nearest shop - but other people will if they don't have a car," says Menniss. It's important to actually visit an area and really get a feel for it, says Robinson. Look for attractions for your potential market - a nightlife of restaurants and bars is important for younger holidaymakers while families will be attracted by day-time activities such as water sports facilities, water parks and theme parks. When working out your budget, be realistic about how much your property will earn you and make conservative estimates. "Beware of hidden costs too," adds Menniss. "For example, a villa with a pool and gardens will be very attractive to holidaymakers - but who is going to clean that pool and maintain the garden between visits?" Consider whether you will pay a local agent to manage your property, or ask friends in the area to look after it for you. Don't forget to factor in insurance - not just building and contents, but also public liability to cover your guests. It's not an area to cut corners on, warns Menniss. "What would happen if a guest slipped on a broken swimming pool tile? Being sued is rare, but it does happen." Funding your purchase Unless you're lucky enough to have enough savings to buy your home outright, the main options will be to take out an overseas mortgage or release equity from your UK home by remortgaging. Borrowing more against your UK home is a popular option, but David Hollingworth of London and Country Mortgages, says you must be careful not to overstretch yourself. "Your monthly mortgage repayments will increase, so it's vital to consider whether you can cope with the added expense." However, with interest rates rising here in the UK, overseas mortgages are looking very competitive at the moment. You will need a bigger deposit though. "You're looking at a minimum of 25% of the purchase price to put down as a deposit," Hollingworth explains. You also need to be aware that when you borrow in another currency, your payments could be affected by currency fluctuations. Many UK lenders have subsidiary branches in other countries, which allows you to borrow in a different currency yet arrange your mortgage from the UK. Some will also lend in sterling. However, Simon Conn of Conti Financial Services, advises caution. "Buyers often go to familiar UK names, but they will rarely offer the best deal." Conn advises shopping around for the best mortgage deal, as you would in the UK. Independent brokers can assist in finding the best one from a whole market of lenders in different countries. Make the most of your money If you're buying with cash or using your UK mortgage, you will need to exchange your pounds into the correct currency in order to carry out the purchase. Fluctuating currency exchange rates can directly affect the Sterling price of your property, so it's worth using a currency exchange specialist. Banks rarely offer the best exchange rates, so it's usually best to use specialists. Currency exchange specialists will monitor the exchange rate for you and advise you when's the best time to buy - and secure that rate until you are ready to complete. "On average it takes between six and eight weeks to complete a property purchase abroad, and currency rates can change dramatically," says Mark Bodega, director of HiFX. "For example, a property in Spain priced at €200,000 would have cost £135,870 at the beginning of March 2006 - yet due to currency movements, that same property would have been £4,758 more expensive at £140,628 just one month later. Get the right legal advice Wherever and however you buy, the most important advice for buyers of overseas homes is: get a good solicitor. Not only can language barriers stand to confuse you, but you'll discover that buying processes are very different to here in the UK.
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