BLOG: The cold, hard facts about buying property abroad
After all, who doesn’t enjoy those dreamily alluring homes in the sun type programmes on Channel 4 and the like?
The picture painted is undeniably attractive. And invariably presented by a telegenic ‘expert’ advising a pair of greenhorns looking to drop a few hundred thousand euros on their dream home abroad.
Characterful French Maisons de Maitre, stylish Spanish Fincas and rustic Greek stone houses surrounded by olive groves and views across tumbledown hillsides to the sea and harbour in the distance. You know the kind of thing.
And all seemingly available for less than the price of a pied-a-terre in London’s swish Maida Vale.
It’s easy to be seduced. As on top of that ladling on of the “investment” potential or the opportunity for running a gite–style business, it would seem prospective purchasers are guaranteed a gilt edged income – either in retirement or as an alternative to the 9 to 5 UK slog.
The current strength of Sterling makes overseas property seem even better value. However as we have seen most recently with the turmoil in Greece, the world is an exceptionally volatile place.
And while the capital markets may be heaving a sigh of relief now that Greece has agreed a deal with its creditors, do not be fooled. This is not the end of it. Rather, the can has just been kicked even further down the road. There is still every chance Greece can crash out of the currency union or that the union itself could fail. And this would ultimately mean a wholesale revaluation downwards of assets in affected countries – not good for investment potential.
It seems to me that the most popular places for UK buyers of overseas properties are pretty much a roll call of Europe’s basket case economies: Spain, Portugal, Italy, Greece, and now, as we learn more about the state of the French Government’s debt, even France is looking vulnerable to a major downturn in its fortunes.
Set aside weird inheritance rules, dodgy developers and fraudulent or even non-existent planning permission, many of these countries have a surfeit of older properties on the market that can be hard to shift once the initial honeymoon period has worn off.
So, the resolute buyer needs to be realistic and take a cold hard look at the realities of their situation.
If you can live with the fact you may never be able to sell let alone at a profit and that the property is really a lifestyle decision then that should be ok.
But more permanent residents will need to take a long hard look at how they structure their finances. So a few searching questions which must be answered: If they are borrowing should they be borrowing in Sterling or the local currency?
Will they need to transfer financial assets to the new country of residence so as to meet local expenses? The options to release equity in order to fund long term care typically don’t exist in many countries.
And what about older age?
Many retirees end up wanting to return to the UK in late old age preferring the security and familiarity of treatment in their language of birth. Medical facilities in France, for example, are generally first rate but that doesn’t stop retirees preferring to return to the UK to see out their last few years among familiar surroundings. In this case retaining some sort of foothold in the UK property market, perhaps via a buy to let may be a sensible planning strategy.
Currencies can go up too. Just look at the situation in Switzerland earlier this year, when overnight the Swiss Franc moved very sharply upwards immediately putting living costs up some 15%. Not good if you are converting UK denominated income to meet Swiss liabilities.
It’s just a thought….
Marcus Carlton is a chartered financial planner and director at wealth management firm, HFM Columbus