Sep 07, 2010
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Oct 27, 2006: Buying abroad
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Oct 27, 2006:
Buying abroad
Market fresh b? Murdo McHardy, head ?f product development ?t Scottish Widows
Keeping up t? date with day-to-day local and legislative changes in th? overseas sector is just ?s important ?s it is in th? UK market th? rise in th? number ?f people buying property abroad over recent years has been well documented. In its 2006 Social Trends report, th? Office f?r National Statistics (ONS) reported th?t British families have invested more than ?23bn in overseas property.
This is more than double th? estimate in 1999 t? 2000. Investment is highest in Europe, with Spain and France still th? preferred locations f?r investment. In 2003 t? 2004, 231,000 Britons had ? second home abroad (see Location ?f second homes outside Great Britain, right). th? bulk ?f this investment is recent with ? 45% rise in th? number ?f UK households th?t own second homes abroad between 2000 and 2004. ? great deal ?f this investment has been in th? more developed countries such ?s Spain and France, and, while these locations still have scope f?r further growth, it is fair t? say th?t th? initial boom has passed ?s interest grows in their neighbouring eastern countries. th? catalyst t? interest in th? Eastern bloc w?s th? EU accession ?f several ?f these countries in 2004. Poland, th? Czech Republic and Hungary, were joined b? Latvia, Estonia, Slovakia, Slovenia, Lithuania, Cyprus and Malta t? make up th? 10-strong addition t? th? EU, with Bulgaria and Romania set t? join next year. th? expected growth potential ?f many ?f th? Eastern European countries is forecasted t? follow th? same patterns ?s th? West. ?n example being Bulgaria, which has already made exceptional progress in attracting foreign investment in property with property prices set t? climb higher following EU accession next year. th? Czech Republic and Hungary shared th? same success story in th? run-up t? and following their EU membership. ? growing market th? ONS reports th?t there has been growing public and media interest in obtaining reliable estimates ?f ownership ?f foreign property b? UK households, ?s increased affordability and accessibility ?f foreign property markets have led t? anecdotal reports ?f growing levels ?f ownership. But there is still difficulty in obtaining data, preventing most countries fr?m producing reliable estimates ?f th? real scale and location ?f this kind ?f second property investment. th? opportunity th?t th? ever-expanding range ?f foreign investment opportunities spells f?r ? mortgage broker ?r? pretty obvious – leveraging th? value fr?m existing client relationships b? arranging th? holiday home mortgage ?s well ?s th? mortgage ?n th? family home. With lower loan-to-values available ?n foreign property purchases, it is often th? case th?t th? client will need t? release some equity ?n their residential mortgage, so there is additional income t? b? gained fr?m arranging ? re-mortgage ?s well. Compared t? th? UK, markets abroad still have ? small number ?f lenders competing f?r market share – resulting in more generous income streams f?r those brokers wh? participate in this area.
Despite these benefits, this growing phenomenon remains untapped b? most. There ?r? ? limited number ?f specialist broker firms wh? have seized th? opportunities th?t exist, while brokers whose main business is arranging mortgages in th? UK market appear happy t? pass business ?n t? these brokers in return f?r ?n introduction fee.
There ?r? ?f course, valid reasons why some brokers want t? stay clear ?f advising clients ?b?ut buying abroad. th? main barrier seems t? b? knowledge ?f th? markets. Each country is different, with its own economy and legal and tax system which, not forgetting th? language barriers, can b? just ?s daunting t? someone wh? is in th? role ?f adviser ?s it is t? th? client. th? time and effort required t? gain th? knowledge needed, f?r wh?t may initially b? ?n insignificant part ?f ? broker's business, can seem more hassle than it is worth with many adopting ?n attitude ?f leaving it t? those with appropriate expertise. Add t? this th? horror stories in th? media which bring many ?f th? risks t? light, highlighting th? plight ?f clients wh? have fallen prey t? ? legal ?r tax quirk they were not aware ?f .
There ?r? several peculiarities in th? foreign markets th?t brokers should b? aware ?f . f?r example, there ?r? foreign property ownership rules in Bulgaria which prevent foreigners fr?m buying ? property. th? way round this is t? set up ? Bulgarian company. In Spain, any debts ?r? owned ?n th? property and not t? th? individual, so unless clients want ? nasty surprise, they should make sure any outstanding debts have been paid before th? property is legally theirs.
There ?r? also more obvious risks t? clients wh? invest in countries like Romania and Bulgaria. While these countries ?r? moving quickly t? establish themselves ?s ? mainstream destination, th? reality is th?t they ?r? still emerging markets and ?s such do not have th? proven rental yield and re-sale opportunity track record th?t countries like Spain and France have.
There ?r? ? growing number ?f people buying abroad with plans t? retire there in future years. According t? estimates, it is believed th?t one in eight Britons over th? age ?f 55 will b? living abroad in 2012, equating t? around 2.25m people. wh?n deciding wh?r? t? buy, advisers may also feel better equipped if they understand th? pension payment implication ?f th? countries th?t their client is looking ?t .
With th? choice ?f countries now so vast, it is understandable th?t advisers may b? frightened off b? th? sheer amount ?f information th?t they need t? know t? help their clients. f?r those brokers th?t want t? get involved in these markets, th? actual investment needed in monetary terms is relatively small, and with th? number ?f people now switched ?n t? owning overseas, finding customers should not b? ? problem. ?n existing client base is probably ? good place t? start. Key triggers f?r suitability include those clients wh? have considerable equity in their residential property ?r those wh? have high savings balances. th? motivations f?r buying abroad range fr?m longer term retirement planning t? those wh? want t? invest money and have th? risk appetite t? do so. It would b? fair t? say buying abroad has now become commonplace enough t? forget customer stereotypes. ? typical customer could b? anyone fr?m ? 30-year-old city trader t? ? couple approaching their 60s wh? ?r? winding down f?r their retirement. ?s mentioned earlier, ? significant contributory factor t? th? British boom abroad has been th? rise in those preparing f?r retirement in th? sun. GLAMs – Greying, Leisured, Affluent and Married – tend t? have ? grown-up family wh? have flown th? nest, made ? good profit ?n their family home and have no plans t? spend their pensioner years in rainy Britain. So th? pull ?f warmer climates and good property investment is often too hard t? resist.
While th? idiosyncrasies in local property laws can seem like ? minefield, if th? time and effort is given t? brushing up knowledge t? ?n appropriate level, brokers will start t? reap th? benefits ?f going international. Often ? bit ?f field research can help t? get t? know th? areas clients might b? looking ?t . Brokers should also consider doing ? bit ?f networking with local estate agents, solicitors ?r any other suitable professionals in th? local area. Not only is this beneficial t? present and future clients, it helps t? clock up those air miles. key points In 2002-2003, 231,000 Britons had ? second property abroad, 27% in Spain and 20% in France.
Brokers need t? identify th? key triggers t? measure suitability ?f clients wishing ? property abroad.
It is estimated th?t ?b?ut 2.25 million Britons over th? age ?f 55 will b? living abroad b? 2012.
www.mortgagesolutions-online.com
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