Holiday Blues? Guidance before buying abroad

07/08/2012

We Scots don’t generally sniff at a bit of bad weather, but mother nature has really tested our patience this Summer. Those of us who took holidays abroad early on in the year are now desperate for another break just to see what it feels like to wear dry clothes again. In dreary circumstances like these, the temptation is to think about emigrating abroad or investing in a holiday home in sunnier climes. The number of UK residents investing in holiday homes has risen by around 50% over the last ten years and there is little sign of this trend slowing. But before you rush into that foreign dream, take five minutes to think carefully. Put aside the lure of sun, sand and sangria and consider the most important question of all – would your investment be a wise one?

The first factor that most people consider in selecting a prospective holiday home is usually the weather. Unfortunately, the countries that are famed for the good weather are amongst those struggling most economically at the moment. This will affect your purchase massively. Spain and Greece in particular are examples of popular holiday haunts with well publicised financial difficulties. We have seen the credit rating of Spain’s biggest bank fall considerably in recent months and financial backing is being pulled out of Spanish house building industry. Around 760,000 homes were constructed in Spain at the height of the property boom between 2006 and 2008. A vast number of these properties remain unsold and may be overpriced in a falling market. Greece is in a similar position and the abandoned construction sites are evident when driving through the towns and cities there. So how does this affect the purchase of your foreign home? Take a moment to think, in a difficult economy with mortgage lending and bank finance reducing considerably, whether your investment would stand the test of time. The suffering the UK has seen in recent years, albeit it on a less serious scale, is a good example of what can happen. Here, the banking crisis and economic slump has meant reduced property prices, dropping values and a roller coaster ride for anyone trying to sell. In Spain and Greece the situation is much worse and you could stand to lose considerable sums purchasing a holiday home there. Worse still, when you come to sell it in the coming years, you may be very lucky to find a buyer at all, let alone one who would be willing to pay you what you spent in the first place. Be very careful not to put your money down a foreign drain!

Quality of construction can also be an issue when buying abroad. A large number of newly constructed holiday homes are of poor quality and were constructed in a rush to meet the property boom demand of 5 years ago. Potentially, you could face significant repair bills on top of your investment and you might find that local contractors don’t act quite as speedily as those on home turf, as well as charging you a fortune for the privilege. The press over the years has reported on various cases where disgruntled Britons have purchased houses constructed in breach of local planning laws or construction rules and some have even had their houses demolished as a result with no hope of recovering the money they spent.

Be wary of the sales representatives and the estate agents abroad – they are out to secure a deal and know that most Britons won’t have the local knowledge and specialist advice to make an informed decision about what they are buying. Legal fees in countries such as Spain and Greece can be high and builders and banks can offer attractive incentive deals to help you buy a new build home at an inflated price you’ll never recover using a mortgage deal that’s too high. The last thing you want to ruin your holiday home dream is a bit of negative equity.

As a young first time buyer struggling to get on the property ladder, the lure of buying that first property abroad is also very attractive. A recent survey has shown that 50% of 18-29 year olds plan to buy abroad and that the majority of this percentage will be first time buyers. This is as much for the perceived rental potential as for the personal holiday home benefit. Most of the attractive deals these young buyers  look for are the famous “off plan” purchases where the only requirement is a tiny deposit in exchange for the promise of a beautifully finished property in the 2 to 3 years to follow. With times hard overseas however, a great deal of developers go bust or disappear with the cash leaving these helpless buyers with an unfinished house and a shattered foreign dream.

Even if you are prepared to take the risk, consider how much you would actually use a holiday home abroad before you take the plunge. Just as with your home here, a holiday home requires continued maintenance and you will have to pay rates and upkeep costs in the same manner as you do here. Any property left unattended for long periods of time has a greater chance of falling into dilapidation and there is also a higher risk of burglary if a property is left vacant for too long.

The moral of the story? Now may not be the time to buy. Keep your investment local and help bolster your home market instead.

For further information relating to property matters, please contact our property team