Not a day seems to pass without a television programme or newspaper article highlighting the benefits of buying property abroad, and the number of borrowers approaching Independent Financial Advisers (IFAs) for financial assistance on this potentially complicated subject is now reaching record levels.
But those advisers unfamiliar with the market can also require specialist advice on the latest hotspots and may need help in finding their their way through the overseas property minefield.
The advent of more affordable world travel, and the enduring attraction of more prolonged periods of sun, has meant that many UK purchasers now see buying an overseas property as a serious option with regard to furthering their financial security, or to retire away from it all.
Media coverage and a slowing UK property market have fuelled an almost feverish expectation among clients that buying and owning an overseas property will be the answer to their dreams. However, the headlong rush to own a chunk of foreign fields and towns has in turn led to an alarming tally of buyers making the mistake of impetuously committing their life savings ‘ or cash from their remortgaged home ‘ to that ‘must have’ villa, apartment or timeshare, only to discover too late the error of their ways when the white heat of purchasing cools a little.
Given their part in such a burgeoning market, IFAs need to be as well informed as possible to be able to offer the considered advice necessary to ensure clients avoid the purchasing pitfalls.
This summer the market for overseas homes ‘ for investment or personal use – has never been stronger. And while France and Spain still head up the top ten destinations for UK buyers abroad, a list that also includes Greece, Cyprus, Portugal and Italy, a new region ‘ that of Eastern Europe ‘ is set to become the next property hot spot not only with UK buyers but also with foreign nationals based around the world.
Poland, with its diverse geography, from the scenic Baltic coastal beaches, to the rocky mountains of the Tatras for winter sports and the great Mazurian lakes for those who want to sail or water ski, is a little-known gem.
Low prices and the availability of properties suitable for buy-to-let schemes are making the former Eastern bloc state an attractive alternative for buyers who cannot find the value-for-money deals they want in France or Spain.
The country has just voted overwhelmingly in favour of joining the European Union. And full membership of the EU ‘ expected to take effect next year ‘ will give Poland greater political stability, a more robust economy and further ease the legal processes and lending terms, which will make the purchasing procedure far smoother. The same should apply to other Eastern European countries, such as the Czech Republic, which also strongly favours EU membership.
The Polish mortgages currently available through specialist lenders allow clients to borrow up to 70% of the value of the property for up to 20 years. Repayment mortgage rates stand at 4.6% for US dollar or 5.6% for Euro mortgages, which makes terms for Poland comparable with many existing EU states.
Beyond Poland, the other countries in the region that are potential key investment destinations include Croatia. With the beauty of Dubrovnik and its endless sandy beaches it was, of course, a major tourist destination before the troubles there. Now, with political stability and its infrastructure restored, Croatia seems on the verge of becoming one of the hottest property spots available. The professional view is that eventually it could well take over as the new Spain. Certainly interest in buying property in Croatia is spreading throughout Europe, so now is the time to be considering it as an investment opportunity.
With Prague as its cultural heart, a wealth of natural beauty and more than 40 popular spa towns offering relaxation and fantastic architecture, the Czech Republic is also beginning to gain interest from the UK. However, its complicated financial restrictions means that registrations are more difficult to negotiate, and there may be a little delay before secure mortgage arrangements are in place for UK clients, although the growing interest in buying in the Republic will help overcome such hurdles.
So who is buying in this region? Countless UK residents have Eastern European connections, be they relatives or ancestors, and many are now looking to buy into a little of the lifestyle that these diverse countries have to offer. Brokers have been experiencing a significant upsurge in demand for mortgages in the region, and the influx of EEC investment, and the status that EU membership will bring to Poland and other Eastern European countries, will see many more British nationals living and working in these states. With prices still low, more are looking to buy a property both to act as a residential base, but also as an ongoing investment, rather than renting a house or apartment.
Romania, Bulgaria and Hungary also seem set to become more attractive targets for property buyers as these countries too move clear of the political domination and unrest that characterised the region for so long. Further afield, South Africa, Dubai and Cuba also offer potential for buyers.
Whichever country IFAs advise their clients on, one factor remains central to a successful purchasing process. It is essential to learn about local conditions and legal restrictions in the country in question before moving forward with a mortgage application as these differ hugely, even between neighbouring countries.
The fact that some UK lenders have overseas divisions, and their mortgage application forms and documentation are written in English, may lead some to believe that UK rules apply ‘ this is simply not the case.
Advising clients to remortgage their UK property to raise capital for purchasing abroad is a traditional, and tempting, route to follow. However, to ensure clients are best served and protected from the numerous pitfalls that await the unwary buyer, it is advisable to do some homework on what is a volatile marketplace.
Also, if an overseas lender is utilised, they may discover problems with the property, for example unregistered title, incorrect or no planning and building licences, or existing charges on the property.
A recent case occurred in Greece, where a British client who was purchasing land thankfully used the services of a local lender, who established that although the seller had the title deeds the land had never been registered in the seller’s name. If the client had raised cash in the UK, who would have advised the land purchaser then?
One strategy that can help prevent problems is to consult a specialist company, which has access to lawyers, agents and other advisers working in the key destinations. This can save time and effort and ensure IFAs are able to offer clients the most appropriate advice.
There is another benefit too ‘ the prospect of more business. Seeking specialist advice often raises the client’s perception of their adviser’s level of knowledge on buying abroad, which can in turn lead to follow-on work from overseas mortgage clients.
Companies that focus on overseas mortgages act as the key link between specialist lawyers, architects and currency exchange companies, and IFAs. As such they are in a position to supply the sort of inside knowledge that some high street lenders may not have at their fingertips. Some also have the provision of dedicated underwriters for each country, another factor that can help ensure the buying process runs smoothly.
Local legal and financial information can make a huge financial difference to clients. For example, a recent change in legal restrictions in Portugal has made it less desirable for offshore companies to buy there. In other countries, cases have also come to light of purchasers innocently buying properties built in restricted military or conservation areas. A locally-based lawyer would be able to study the contract in his or her native language and alert an IFA’s clients to any problems it throws up.
Regulation of the property market overseas differs from that in the UK in that the Mortgage Code does not operate outside the UK. However, while not covering mortgages, another monitoring agency does cover property transactions, and the Federation Of Property Developers, Agents and Consultants (FOPDAC) functions throughout Europe and in other countries beyond that.
In dealing with overseas mortgage specialists, IFAs are well-advised to seek out FOPDAC members as another way of assuring they deliver the best service for their clients, and do not catch a cold themselves.
Availability of funds remains a crucial issue. Loans can currently be negotiated in most of Europe, as well as the USA, Canada, South Africa, Australia, New Zealand, the Caribbean and, of course, Poland. There are usually several mortgage options available to clients, with repayment, endowment, ISA or pension-linked schemes all possible.
To conclude, buying a holiday home abroad is likely to be the fulfilment of a life’s ambition for a great many more people these days. However, putting down roots abroad needs all the thought that buying a first home in the UK involves, and a bit more besides. By accessing specialist overseas mortgage services, IFAs can deliver best practice for their clients when advising and assisting them on buying abroad.
A number of Eastern European countries are looking to join the EU, which will make it easier to buy property.
With property deals of this type it is even more important to use local lenders and services.
FODPAC can help point UK advisers in the right direction in terms of mortgage services.