Cost of overseas homes falls

The cost of buying a property in the popular destinations of the US, Spain and France has fallen for UK investors over the past year, making the case for purchasing a second home in these countries more attractive, experts say.

Property prices in Russia have fallen the most, dropping 24 per cent in sterling terms in the 12 months to December 2009, according to research from Knight Frank. But the cost of buying a property was 9 per cent less in the US compared with a year ago, with European countries such as Greece, Spain, France and Italy also seeing declines.

The volatility of the pound over recent years has had a significant impact on UK buyers and their ability to finance overseas purchases, says Liam Bailey of Knight Frank.

The decline of the pound against most of the leading currencies around the world caused prices for UK second-home buyers to soar in the past two years.

Meanwhile, international homebuyers from Russia, Italy and China flooded the prime London market, taking advantage of discounts of up to 50 per cent from currency fluctuations and house price falls.

But Bailey says the situation has improved for UK investors looking to buy abroad. “It was much more expensive two years ago because the pound had weakened dramatically but, over the last year, sterling has stopped its decline and come up a little bit,” he points out.

Spain, a popular second-home destination for British people, is still 12 per cent more expensive in sterling terms compared with two years ago. However, exchange rate changes mean that prices in the past 12 months have become 8 per cent cheaper. Similarly, a property in France would have risen 15 per cent in the two years to December 2009 but prices are down 6 per cent over the past year.

Spain, France and the US have attracted a lot of interest from UK buyers due to big house price falls, agents say. The three countries made up 83 per cent of total searches on the international property website, Primelocation.com, in December.

The number of people searching for properties in Spain has increased by 341 per cent since December 2008 and was up 48 per cent in the month to December 2009.

Ann Wright of Prime-
location.com, says: “Interest in overseas property has shot up in recent months. The encouraging signs of recovery in the UK property market and economy and the resulting upturn in consumer confidence appear to have had a knock-on effect on the overseas market.”

Clare Nessling of Conti Financial Services, a mortgage broker specialising in overseas purchases, says there has been a surge in interest in the past few weeks in mortgages for France and Spain. “Currency is part of the reason behind this as well as the fall in house prices,” she says. “Spain is unique – the whole property market has suffered and there are some massive discounts to be had there.”

But mortgage brokers warn that obtaining mortgage finance overseas remains difficult. “France, Spain and the US are attracting buyers currently but there is a considerable difference in terms of lending available,” says Miranda John of Savills Private Finance International.

While homebuyers can still find high loan-to-values of 80 per cent in France, Spain has fewer lenders active in the mortgage market, which has reduced the number of competitive deals.

“Loan-to-values have been hit,” says John. “In mainland Spain, it is difficult to raise more than 60 per cent loan-to-value.”

However, she said other areas such as Majorca were holding values well, so higher loan-to-values could be found there.

The US offers even more limited options – there is only a small number of willing lenders and property buyers need at least a deposit of 50 per cent.

In spite of the recent small improvement in sterling, property in many countries remains expensive for UK investors. Australia is 38 per cent more expensive compared with a year ago, with Norway, South Africa and New Zealand not far behind.

And wealthy City workers considering moving to the more attractive tax environment of Switzerland will have to pay 9 per cent more compared with a year ago.