A decade ago the notion of owning a property abroad was the reserve of the super rich but the last five years has seen a spectacular rise in the number of Brits buying property overseas.  Four years ago, the number of properties owned by people from the UK was around 170,000 whereas figures from the Office of National Statistics recently revealed that over 200,000 Brits are travelling abroad every year with a view to buying an overseas property. 

 

Initially, most of the properties bought were in the main European destinations such as France or Spain.  The recent extension of the European Union and improvements to airline routes has now made other destinations much more appealing and Brits are now buying property in locations from Brazil to Bulgaria.

 

There are many reasons why one would want to buy a property abroad.  Firstly, and very simply many Brits are emigrating in search of a better quality of life.  Better weather, a beach or, in some instances, a safer location appeals to many Brits fed up with cold winters, incessant rain and a long and uncomfortable commute to the office.

 

Whilst there are many who have moved overseas lock, stock and barrel, a large proportion of Brits have simply bought their property abroad as an investment or holiday home.  The ability to travel to (mainly) European destinations on a range of low-cost airlines has encouraged Brits to buy holiday villas and apartments that they can use as a regular retreat.  Some have additionally bought property abroad for their own use but with investment in mind as the additional income generated by also letting their holiday homes can be lucrative.

 

Another major reason why Brits have bought abroad is related to the relative prices and house price inflation of overseas properties.  Whilst house price growth may have slowed in the UK there are still some areas in the world where house prices are rising quickly. This has led speculative investors to buy property in the hope of increased capital values over the medium to long term.  Knight Frank’s Global Prices Index recently showed, for example, an annualised property price growth of 31.5% in Bulgaria, a popular destination for UK property purchasers.

 

Those who have bought property over the last few years, particularly in a number of the emerging European markets (Eastern Europe, the Baltic countries etc) are likely to experience capital growth as the development cycle in those countries was in a nascent stage at the time of purchase.

 

Many Brits have therefore benefited from a better quality of life, a convenient holiday home or a significant property investment gain.  However, as programmes such as “Holiday Homes from Hell” often point out, there can be some significant downsides to purchasing a property abroad.

 

Many of the horror stories people tell about their experiences purchasing property centre on the huge differences in the property buying process between the UK and overseas territories.  Many people erroneously make the assumption that the process is much the same, but local differences in property law, taxes and financing make it imperative that specialist independent advice is sought in all areas.

 

For example, in Turkey foreigners are not allowed to purchase property in village or rural locations.  In the USA, there are restrictions as to the amount of time you are allowed to reside in the country without a specialist visa and in Spain there are different property laws even within the different regions of the country. 

 

Independent legal advice with an English-speaking lawyer who can explain issues of property title as well as explain any property purchase restrictions or taxes is absolutely essential.  Contracts are naturally written in the local language and so having someone who can read and understand the intricacies of the local system is imperative. 

 

One of the main other difficulties buyers encounter when purchasing property abroad relates to obtaining mortgage finance.  Overseas mortgage markets are, in the main, not as developed and flexible as the UK market was until recently and what we might take for granted in terms of mortgage products are frequently not available abroad. 

 

Many people who have purchased property abroad used specialist mortgage brokers to obtain the property finance secured on their foreign home.  For much of the last five years or so, European interest rates have been lower than UK rates and so mortgages were competitive and repayments low in relative terms.  However, the European Central Bank doubled interest rates (from 2% to 4%) between 2005 and 2007 and so the cost of borrowing abroad increased significantly.  Buyers should bear this in mind also.

 

One of the major risks to buying property abroad is in the fluctuation between sterling and the currency in which you buy.  Movements in exchange rates can mean buyers having to find more funds to complete a property purchase, particularly for “off plan” properties where there may be over a years between signing of contracts and completion of the property.

 

Buying a foreign home has never been more popular and whether you simply want a place in the sun for your family or you are a keen investor seeking the returns from a burgeoning market, it is worth taking professional property advice to minimise the pitfalls that may face you.

 

Nick Parkhouse

 

Property Finance Editor

Best4property.co.uk