Despite the turbulence unleashed on the UK mortgage market by the global banking crisis, you may be pleasantly surprised by the healthy appetite of overseas institutions to lend to foreign investors. Perhaps this is why more and more brokers are tapping into this market and seriously considering it as an extra source of income. In the last six months alone, Conti has received more than 1000 intermediary registrations.
But it is not just mortgage availability which is contributing to the attractiveness of this market. Falling property prices, in some cases by up to 40%, and historically low interest rates are making overseas property purchase much more affordable, despite the current strength of the euro. And there is recent evidence of British buyers taking full advantage of this, with property portals reporting significant increases in searches for homes abroad, as well as overseas mortgage brokers experiencing surges in enquiries.
However, the current economic climate does have a bearing on your clients’ likely choice of location. Our recent ‘hot spots’ report showed that buyers are sticking to the more proven destinations, with France swooping into first place, accounting for nearly a third (31%) of enquiries received this year, followed by Spain with 22%, despite all the recent doom and gloom about the Spanish property market. Enquiries for both locations have increased considerably since 2008, as investors shun the emerging markets and put their trust in the old favourites, especially those with a history of providing good rental returns. It seems that the smart investor is no longer simply looking to where the best bargains for a swift return can be found, but to where security lies for a longer-term investment.
Last year, some investors’ concentration on emerging markets started to erode the lead of the traditional ones. This year, the tables have turned. Buyers are sticking to locations they know, but it is not that alone – affordable prices, low interest rates, easy access and good rental yields have all contributed to the enduring attraction of these destinations.
While France and Spain now account for more than half (53%) of all enquiries, compared with 29% last year, Turkey has maintained third place in the table and increased its share to 13%. Portugal and Italy have also advanced up the table, to fourth and fifth places respectively, while interest in both Bulgaria and the USA has declined over the last year.
Movers and shakers
France continues to enjoy a very stable market, primarily due to its financial system having been among Europe’s more cautious in the past. As it is in a relatively secure situation, there is strong appetite for lending to foreign investors and in some cases, it is still possible for your clients to borrow up to 100% of the value of their property. It has become an increasingly attractive investment option, not least because of very low interest rates (some less than 3% at present), but also due to lower property prices, with many sellers dropping their prices to levels we have not seen for several years. It is a buyer’s market.
Buyers of Spanish property are also in a strong position due to the number of homes available, low interest rates, and the opportunity to negotiate price reductions from some very motivated vendors. Prices in some areas, such as the Costa del Sol, have plummeted by 40% since the peak in 2006/7. Spain is still willing to lend to non-residents and your clients could still generally borrow between 60% and 70% of the value of a property. Spain has been at the forefront of the overseas property market for a long time, so has very strong foundations. Your clients can still buy with confidence, as long as they buy sensibly and treat their property as a long term investment.
Often referred to as the ‘new Spain’, Turkey offers some great property prices and all the benefits of its Mediterranean location, minus the effects of the strong euro. Tourism has risen dramatically in recent years, which will ensure that demand for quality rental properties in the popular tourist areas will continue to outstrip supply, making yields very lucrative.
Portugal and Italy, having experienced a drop in interest last year, are both enjoying a revival. Buyers in Portugal have been attracted by lower prices – up to 30% in some locations – and investors may like to know that Portugal reported an end to its recession recently. The market in Italy remains strong, and property can still be a profitable acquisition if your clients buy in areas popular with international tourists.
But the story is very different for Bulgaria, where interest has dropped off significantly over the last few months. Many lenders have been involved with problematic developments there, and this, combined with an over-supply of building, has led to a big fall in valuations and banks have been questioning the asset security. As such, it is virtually impossible to arrange mortgages in Bulgaria at present, and demand has inevitably decreased. The USA has also experienced a fall in demand due to the stronger dollar making it more expensive for British buyers.
The overseas remortgage market also holds great potential. More than two million Britons currently own a property abroad and, with interest rates at an historic low, many of them are looking at the refinancing options available. And the current strength of the euro means that equity in many second homes abroad is now worth a great deal more when converted back to sterling.
If any of your clients have unencumbered overseas properties, or have seen some price growth since they were bought, they could release equity to help buy UK property or buy more overseas property. They may be able to release cash to inject into their UK properties to bring down their loan-to-value ratios, or they may simply want to switch their overseas mortgage to a cheaper rate.
Shared mortgages
Have you ever thought about suggesting a shared mortgage to your clients? Many people assume that they will never be able to afford an overseas property, while others may put off their dream of a place in the sun because they cannot meet the expense of the property that they really want. However, if they have a friend or family member who is in a similar position, the solution might be to share a mortgage.
By adding someone else to the equation, it is possible to combine borrowing power, and the resulting joint income is something which a lender is more willing to consider. And it does not necessarily have to stop there – many overseas lenders will consider shared mortgages for up to four different applicants. It could be a way of making your clients’ dreams more of a reality.
While your clients may find it easy to choose their dream home abroad, it is vital that they determine how much they can afford before embarking on the purchase process. An ‘Approval in Principle’ (AIP) will do just that – it lets you tell them exactly how much they can borrow and what price range they can consider when conducting their property search.
It will also put them in a much better position with agents and developers and prove to them that they’re a serious buyer. Any private seller, given a choice, will also prefer a purchaser who can demonstrate that they’ve got their finance in place. Clients with an AIP could also be better placed to negotiate price.
If you have not yet considered the overseas mortgage market as a source of additional income, there has never been a better time to do so. There is a growing feeling of confidence among prospective buyers, and savvy investors are more willing to explore overseas opportunities in their search for better potential returns on investment than they’re achieving in the UK.
Conti has recently launched a new online sales toolkit, offering ready-made sales letters, brochures, newsletters, top tips and a free weblink, providing everything you need to generate overseas mortgage sales from your existing client base. It costs nothing and means you can promote this service with minimal outlay from your own business.
Mortgage Brain’s new overseas sourcing module, launched in partnership with Conti, allows brokers to process enquiries and applications for overseas mortgages as simply as if they are dealing with a UK mortgage. And, by receiving an introducer commission, it means you can earn a valuable new source of revenue as part of your normal mortgage advice and sales processes. What have you got to lose?
Michael Axelrod is commercial director at Conti, the overseas mortgage specialist
