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Property Investors Dream Of Owning Property Overseas

Property Investors Dream Of Owning Property Overseas

Imagine owning Property in Fethiye, a small Mediterranean resort on the beautiful Turquoise Coast of Turkey, or a stunning residence in Tuscany with beautiful sea views. Both have plenty of appeal for holidaymakers and offer a perfect retreat from the hustle and bustle of the daily grind.

Buying property in another country can be a very rewarding experience and an exciting prospect, but the purchased accommodation needs to be able to pay for itself when you are not using it, so do your research thoroughly and purchase wisely!

Many property investors dream of owning their own piece of their favourite holiday destination, but investors should be warned not to let their hearts rule their heads.

It’s crucial to seek the right advice and try not to cut corners. The principles that property investor should stick to in the UK also apply when purchasing overseas property.

Below are a few tips to ensure that purchasing a property in a foreign country is as hassle-free as possible.

  1. 1.   Contracts

Never sign a contract that you don’t understand. If two versions are provided, i.e. English and local language, ask your solicitor to confirm the English version is a true translation, as you need to ensure it doesn’t contain errors, omissions or extras.

Always read the contract. Ensure you are fully conversant with the terms and conditions you are about to agree to.

Specific points to be clear about include:

  • What deposit is required? Is it refundable and under what circumstances?
  • For new properties, what stage payments are required and when?
  • What is included in the price and what is the cost of the extras?
  • Check the due completion date.

 2.   Obtain an Approval in Principle

If you require mortgage finance, obtain an ‘Agreement in Principle’ for the mortgage before agreeing to purchase the property, or before signing any contracts and paying a deposit. This will tell you exactly how much you can borrow and the price range you can realistically consider.

It will put you in a much better position with agents and developers, proving to them that that you’re a serious buyer, and you’ll be better placed to negotiate price. It’s tangible evidence that you can take along when house hunting and it can also lead to your application being fast tracked once you’ve chosen your property.

3.   Valuation

Before proceeding with the purchase (especially with a re-sale property, regardless of age), ensure an independent valuation of the property is carried out, which should point out any problems with the property – e.g. subsidence, damp, wiring defects – and could also highlight any possible boundary disputes.

4.   Legal advice

Seek specialist counsel from an independent English-speaking solicitor who is not connected to your seller, estate agent or developer. If required, you can also consult valuers, surveyors or architects. They should be proficient in your chosen country’s laws and processes and also know the specifics involved in buying a property there.

It’s essential that they confirm to you that all required permissions, licences and planning consents have been obtained. In particular, your lawyer should check that you’re buying a property with the correct title. And that you are being registered as the official owner.

One of the biggest advantages of taking out an overseas mortgage is that the lender will do its own checks on the property, ensuring that a proper legal title exists, that the property is registered in the buyer’s name and that a valuation of the property takes place.

5.   New build properties

If buying from a developer

  • What’s their track record?
  • How long have they been trading?
  • Are references available from previous buyers?

Check comparable properties in the area and any re-sales offered on the same development.

If the developer mentions ‘rental returns’, what are these based on? Check they’re feasible and have been achieved in the past.

Before making any commitment to purchase, allow for a cooling off period, just in case you see a must-have property and are tempted to put down an instant deposit.

6.   Research

Conduct thorough due diligence and research on local facilities and transport links. People gravitate to locations with a nearby airport, (especially if it’s served by a budget airline), but remember there are no guarantees that cheap flights will continue indefinitely to any one location. Proximity to basic facilities like restaurants, shops and a beach are also important.

Talk to people who already live or own property in your chosen area, to get a better understanding of what it’s like to live there. Also consider the property off-season, many resorts are seasonal and virtually close when the tourists return home.

7.   Exchange rate fluctuations

Even small changes in exchange rates can make a big difference to

  • The purchase price of your property overseas
  • Monthly mortgage payments
  • Future rental income.

Consider the benefits of financing your property with a mortgage secured in the local currency – e.g. if you’re planning to rent out a European property through agents local to the property, the euro income can be used to service the monthly euro mortgage payments, avoiding any fluctuations in currency.

8.   Local money

Open a bank account in your chosen country and, where relevant, ensure you obtain a Certificate of Importation for the money you bring in from your home country.  

Set up standing orders in your local bank account to meet local bills and taxes. Failure to pay your taxes in some European countries such as France, Portugal and Spain, could lead to legal action by the Government authorities.

9.   Tax

Check the inheritance and capital gains tax laws of the country where you are buying. For example, in France your children automatically inherit rights to your house; your estate may not automatically pass to your spouse and you may, therefore, need to compile a separate will.

If you take a mortgage out on a property in France or Spain, it may reduce your inheritance tax liability as there is a debt on the property. If you rent out your property you will be liable for income tax.

Seek professional tax advice so that you’re fully compliant and to take advantage of all the possible deductions.

10.    Extras

Bear in mind that bills don’t end at the asking price. Solicitor’s fees, local and national taxes, insurance, etc must all be met in the host country and can often add at least a further 10% to the cost of acquisition. Ensure you are aware of the costs charged by the legal and Government authorities for purchasing a property in your chosen country.

Residential property affordability is at its most favourable in almost a decade, according to the latest Lloyds TSB Affordable Cities Review.

My home town of Salford, in the North West, is the most affordable UK city with an average property price of £102,391 that is 3.81 times the average gross annual earnings.

This partly reflects a 32% fall in house prices in this part of Greater Manchester since 2008.

The average price for a home in a UK city is £173,202 equating to 5.5 times the average gross annual earnings.

This is an improvement on 5.7 times the average gross annual earnings in 2011 and is significantly below the peak of 7.2 times the average gross annual earnings observed in 2008.

10 most affordable UK cities, 2012

UK cities

Region

Price to Earnings ratio

Salford

North West

3.81

Londonderry

Northern Ireland

3.87

Bradford

Yorkshire and the Humber

3.98

Lancaster

North West

4.00

Stirling

Scotland

4.04

Belfast

Northern Ireland

4.08

Durham

North

4.08

Lisburn

Northern Ireland

4.09

Hereford

West Midlands

4.26

Birmingham

West Midlands

4.43

UK cities average

 

5.51

Sources: Lloyds Banking Group, ONS

The marked improvement in affordability in UK cities over recent years has been driven by the significant fall in residential property prices.

Since 2008, the average house price within a city has fallen by 18% (£37,403) from £210,605 in 2008 to £173,202 in 2012.

  • 7 out of the 8 most affordable cities are in Northern Ireland and the North of England.
  • Ely in the East of England is the most affordable city in the south of England (4.60).

The least affordable city in the UK is Truro in the South West where the average property price (£250,489) is nearly ten times (9.71) the average gross earnings in the area. The benefits to the quality of life associated with living in this picturesque part of Cornwall have supported residential property prices in this area for the past decade.

Oxford (8.80) is the second least affordable city, followed by Winchester (8.76). Inverness (5.97) and York (5.95) are the least affordable cities outside Southern England.

Suren Thiru, housing economist at Lloyds TSB, commented: “The improvement in housing affordability within many of our major urban conurbations has been significant during the past few years and reflects the decline in house prices over the period. There is, however, a distinct north-south divide to the locations of the most affordable UK cities. Looking forward, the marked improvement in city affordability is likely to help support demand for those able to enter the housing market. Much of this benefit, however, maybe offset by the continuing difficulties many households face in raising a deposit and uncertainty over the outlook for the UK economy.”

Many UK homeowners traditionally plan to do major DIY projects to their properties during the extended Easter break, in a bid to improve living conditions and also in the hope of increasing the perceived value of their homes.

However, a new survey from HSBC claims that DIY improvements are not worth it anymore as DIY projects were adding less value to a property than they were a year ago.

According to HSBC’s valuation experts, a loft conversion is the safest investment, typically increasing the value of a residential property by £16,152, although the gain is 23% down on 2011.

An extension could add £15,665 (3% down), while a new kitchen may boost the value of a home by £4,577 (19% down).

The only major home improvement work to increase the relative return-on-investment in the past year is a new conservatory, putting on an average £9,420 in value to the property, up 14% on 2011 figures.

The survey also highlights that regional variations need to be considered when tackling home improvements.

For example, a residential property fitted with a new kitchen in London should increase the property’s value by an average of £9,125 (GBP), compared with £4,300 (GBP) in North-East England and £2,333 (GBP) in Scotland.

Paul Cutbill, Valuation’s expert at Countrywide Surveying Services, says: “Whilst sensibly improved and well presented homes will generally be attractive to potential purchasers, rising labour and material costs mean that the gap between the cost of improving and monies realised at the point of any sale has been reduced. Poor quality work and a lack of proper design, usually resulting from inadequate project budgeting and planning, can have a significant negative knock on effect to any added property value”.

With the continuation of the record low Bank of England interest rates (0.5%) there has been very little movement in UK property prices for more than 8 months.

However, UK mortgage lender Halifax reckons there was a 0.6% increase in UK property values in January 2012.
The UK’s largest mortgage lender found that despite the month-on-month increase in January, on average UK property prices were still 0.9% lower over a rolling three-month period.

The average price of a UK residential property in January 2012 was £160,907.

This has resulted in a 14-year low, in terms of payments in proportion to household earnings, for new borrowers looking to invest in UK residential properties.

Martin Ellis, housing economist at Halifax, said: “If the UK can avoid a prolonged recession, we expect broad stability in house prices in 2012.”

The prospects for UK property prices in 2012 will depend on many facors, including the fallout and repercussions from the Eurozone debacle and its effect on the struggling UK economy.

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Don't become a rogue landlord

Don't cut corners when renting out property

The downturn in UK property valuations has lead many existing homeowners, some of whom are desperate to sell up, to consider alternative ways to cash in on their current property, without having to sell it below their expected valuations.

A fairly noticeable proportion of these vendors are choosing to become first-time landlords, rather than settling for a below market offer.

The prospect of more reluctant or accidental landlords entering the private rental sector (PRS) is not such welcome news for the UK rental property market. Ill advised or inexperienced landlords often make mistakes or cut corners in order to preserve cash flow or increase rental yield.

Any bad business practices can be perceived by some to be the actions of a rogue landlord, prompting Legal 4 Landlords to issue some general guidance advice for new, first-time and inexperienced landlords

All landlords need to comply with the current UK regulations and the following points are highlighted as essential:

• All prospective tenants should be thoroughly referenced and credit checked by a reputable agent, to ensure financial ability to pay the rent and gain an insight into the suitability and character of the tenant.
• Provide a proper Assured Shorthold Tenancy agreement (AST) signed by both Landlord and the tenant, outlining the length of the tenancy, amount of rent, date rent is due, and details of which government deposit protection scheme is to be used.
• At the start of the tenancy walk round with the tenant and conduct a detailed inventory describing the condition of all the fixtures and fittings of the property in detail, along with the furnishings.
• Gas appliances must be checked annually by a registered Gas Safe engineer and the landlord must provide the tenant with a copy of the Gas Safety Certificate (CP12).
• The landlord should take out comprehensive Buy-To-Let or Landlord insurance to protect their property asset.
• All repairs should be fixed promptly and only use reputable tradesmen that you know and trust to tend to the property, this is extremely important if emergency repairs must be done at short notice.
• If using a lettings or property management agent remember to conduct Due Diligence on them thoroughly and make sure as a landlord that you are happy with their terms and conditions before appointing them.

There are currently a record number of people searching for suitable rental properties in the UK, meaning that would-be landlords should have no problem finding a willing tenant, providing their properties are fit to rent.

New and first-time landlords should note that letting a property can be stressful and time consuming, as well as a very financially and personally rewarding experience, and is an effective way of providing an additional income.

Prospective landlords will need to remember they are effectively starting a business that centres on property and must remember to treat it as such.

Legal 4 Landlords are the UK’s fastest growing Tenant Eviction specialists who also offer a wide range of useful services for landlords including Tenant Referencing, Landlord and Tenant Insurance policies and Rent Guarantee insurance.

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There really could not be a better time to invest in UK property, and London is a favourite spot for Buy To Let Landlords.

Property investors looking for Buy-To-Let investment opportunities may have the chance to bag a property bargain after average residential property asking price fell by more than £7,000 (GBP) last month. That’s the biggest fall in monetary terms for almost 4 years.

The average asking price for a residential property in England and Wales in November is now £232,144, down 3.1% compared with October, according to the latest survey by property website Rightmove.

The number of new property instructions on the market also fell back to levels last seen during the 2008 collapse of American investment bank Lehman Brothers, which sent the global economy into recession.

Even London could not buck the trend in dipping valuations as all regions in England and Wales were hit by monthly property price falls for the first time in over 3 years.

Although London is still the prime location for buy-to-let investors, as rental rates rose faster in the UK’s capital city than in any other UK region over the past 12 months.

Amid a flagging market, London’s annual increase in rental rates remains significantly higher than other parts of England and Wales.

Rental rates in London increased by 5.7% in October, compared to a 4.6% rise in the West Midlands, and a 4.4% rise in the South East.

Rental yields also rose in the capital, increasing to 5% last month from 4.9% in October 2010

However, the rate at which rental rates are rising has slowed, and the annual increase to 5.7% in October does represent a fall from 5.8% in the previous month. But rents have now risen for 9 months in a row and already stand at a new record high, while the average yield remained steady at 5.3%.

When these figures are combined, buy-to-let landlords with rental property in the UK’s capital city are very happy investors.

For the rest of the UK, the average property asking price in November 2011 fell by £7,528 compared with October 2011, the biggest monthly drop in financial terms since December 2007, although this is still 1.2% higher than November 2010

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There Will Never Be A Better Time To Invest In Property

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