New horizons for first-timers

First-time buyers are being targeted by a growing band of property experts who claim that anyone priced off the ladder in the UK should consider buying cheaper houses abroad, in locations such as Poland, Turkey or even India. A new website, www.from55k.co.uk, from Parador Properties, one of the biggest British-owned property companies in Spain, promises aspiring homeowners the chance to buy a new two-bedroom apartment abroad for as little as £55,000. Another website, www.property.bg, also offers first-time buyers an overseas service. A survey by YouGov, the polling company, shows that nearly half of 18 to 29-year-olds plan to buy abroad, and two thirds of these say that this would be their first property purchase. The idea is alluring. This week the Royal Institute of Chartered Surveyors reported that some European housing markets enjoyed double-digit growth last year despite interest rate rises. An added bonus is that a plush flat in a sunny location could also bring rental income from holiday-makers, as well as providing a getaway destination.
Jonathan Burridge, of Quantum Mortgages, the mortgage broker, says: “This is still a relatively new concept and, as a pioneer in new territory, you can expect to meet bagmen and cowboys. However, there is gold to be had for the wise and the lucky.” But experts advise that buying overseas carries a host of unpredictable risks and costs. Ray Boulger, of John Charcol, another mortage broker, says: “I am not surprised that overseas consultants are targeting first-time buyers — the low prices look appealing. But for most first-time buyers, buying abroad is wrong for so many reasons that it is difficult to know where to start. The biggest mistake is assuming that the overseas market will perform in the same way as property in the UK.” There are predictions of a threefold increase over the next ten years on property in Prague and reports of high demand in Bulgaria. But Mr Burridge says: “This is speculative. The marketing literature looks attractive, but has yet to be proven right.” An important consideration is the property rental market in the country in which you are buying. A strong rental market can mean weaker capital appreciation. Residents in France, Germany, Italy and Spain traditionally rent their homes. A flurry of foreign investment pushed up prices for a while, but the market is not driven by a homeowning culture over the long term, as is the case in the UK. Even if the purchase price looks cheap, the initial costs of buying abroad are likely to be higher than in the UK, especially legal expenses. Mr Boulger says: “Legalities vary from country to country and prospective buyers should never sign anything they do not understand. This may mean hiring more than one solicitor, who will have to put in more work, which will mean higher fees.” Stamp duty is also likely to be higher abroad — in some countries it is as much as 10 per cent, compared with 1 per cent for the average first-time purchase in the UK. Despite ultra-low prices, particularly on new-build apartments, buyers should be aware that prices when they sell may not be as high as they had hoped. For example, the Spanish new-build market is active, but selling on apartments is becoming more difficult, meaning that sellers are having to accept lower prices. This could be a problem for those hoping to use the profits for a deposit on a home in the UK. Mr Boulger says: “If the purchase does not go well and you fail to make a profit, this may scupper plans to buy in the UK.” If you keep the overseas property while buying in the UK, it may be harder to find a willing lender because other mortgage commitments will be taken into account when deciding what risk you pose and how much you can afford. Anyone convinced that buying abroad is for them should do some research. Mark Bodega, of HIFX, the currency exchange company that spe-cialises in overseas property purchases, says: “Nothing beats pounding the pavements. Look at the rental income generated by similar properties in similar areas. Target places that you can rent out year-round, such as European cities, and note how easy it is to get there.”