Increasingly UK mortgage brokers are seeing consumers come through their doors in search of that dream home abroad – somewhere they can escape to for rest and relaxation or take extended family holidays. But when it comes to choosing that hotspot, what countries are consumers turning to and why? And what do brokers need to be mindful of when seeking to advise and help consumers make choices that are right for them?
Lifestyle over investment
Recent research reveals that a staggering 78 per cent of the UK population want to buy a property abroad one day – on a par with UK home ownership aspirations. Why is this, one might ask? Is it for short-term ‘quick win’ investments in bullish emerging markets such as Bulgaria and Romania? Or is it as a longer-term investment alternative to our domestic market – which is surely, we are often told, reaching its peak? Neither, is the answer – and if as a broker your focus is on extolling the house price inflation virtues of various continental markets then you are unfortunately missing a trick.
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Lifestyle is the key. That is the single fundamental driving force behind UK consumers’ foreign property aspirations and should be at the front of any discerning broker’s mind when advising on a sale. Buying patterns have always been complex but now it seems we are seeing a trend in consumers who are not thinking about long-term investment in their decision making, but basing their choices solely on lifestyle choices such as cultural fit – with a splash of affordability thrown in for good measure.
Looking at the figures below, culture and climate lead the way when consumers look to buy their dream property abroad, with long-term investment accounting for just 10 per cent. Surprising as this may be, we have to remember many of these will represent holiday homes, but will also become retirement homes for consumers in the long run and so the prospect of selling isn’t at the forefront of their mind.
Reasons why consumers buy abroad in a specific country include:
Reason for buying in a specific country Percentage of consumers
- Culture – 37 per cent
- Agreeable climate – 35 per cent
- Property affordability – 22 per cent
- Cheap travel – 15 per cent
- Nice food – 11 per cent
- Similarity to UK – 11 per cent
- Best long-term investment –10 per cent
Understanding motivations
Spain is still the most popular destination for Britons, closely followed by France. But Spain is popular because of its climate, the cheap travel costs to the country and its overall cheap property prices. In addition, the prospect of being able to converse with a large ex-pat population in what is essentially a UK tourist destination is a bonus. Spain is also popular with older generations.
However, aside from lifestyle choices, it is important that brokers have a depth of knowledge about various markets, highlighting the need for potential buyers to take into consideration other factors such as language, crime levels and travel options before going ahead with their purchase. When buying a property in a foreign country, it is often essential to be able to speak some of the local language, particularly when buying property in a country that is not heavily populated by fellow Brits, such as Eastern Europe. In such countries, it can often benefit purchasers to learn the basics, as not only will this help with the purchase of the property, but it will also help with integrating into a new community.
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Consumers also need to factor local crime rates into their decision. In the European Crime and Safety Survey published in January this year, France and Spain – consumers’ top two choices – were below the European average score when it came to overall one-year victimisation prevalence rate. When looking at a property in such areas, it is important to look out for security features such as window bars for ground floor properties, which are standard features in most properties, but could be costly to fit should they not come with purchase.
Many Brits buying a second property are not looking for somewhere to visit for the basic two-week holiday a year, but envisage a destination they can visit throughout the year and for long weekends away. Therefore, having affordable and easy access to the country of choice is important. With the increase in budget airlines, flying to Europe has never been easier or cheaper, but with climate change and carbon emissions being high on the political agenda, there is a possibility that this will not remain the case in the long-term future. Following the Stern Review, a number of suggestions were made as to how emissions could be reduced and a number of airlines have agreed to the EU Emissions Trading Scheme, which balances the huge economic and social benefits with the environmental impact. This could have an impact on low-cost airlines.
It is evident that buying a property abroad is not as easy as some may think and there are a lot of choices that need to be taken into consideration. Therefore, it is essential that brokers act as a trusted adviser – ensuring that consumers understand as much as possible about their chosen location before they make their final purchase.
Short-term prospects
Individual lifestyle choices are clearly important for UK consumers, but they also need to be made aware of the economics of the market they are considering buying into. Brokers should encourage consumers to take into consideration the short and long-term investment prospects when providing advice to potential buyers and highlight the importance of looking to the future.
Over the next year, brokers are predicting the strongest house price inflation to be in Bulgaria, closely followed by Spain, Portugal and Romania. Yet although these Eastern European countries look set to be short-term investment hotspots, they are still not attracting sufficient UK homebuyers. Less than 8 per cent of Brits would consider buying in Bulgaria, and just 13 per cent would look to Romania, for fear that they are too complicated and risky, with hard-to-learn local languages and generally poor levels of English being spoken in the country.
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Therefore, to benefit from the short-term investment opportunities, UK consumers need to open up to the prospects of Eastern Europe and consider how buying in this region could see a potentially good return on investment in the next 12 months.
Looking ahead
When it comes to consumer views on the benefits of long-term investment, just 10 per cent of British people cite this as being key to their decision making process, but this changes depending upon status. For those with children, the figure rises to 14 per cent and for those without, it falls slightly to 9 per cent.
However, for those who are advising towards a long-term investment, it is evident that UK brokers are more akin to consumers’ desires, with Spain, France and Portugal all being cited as the top three places to invest. Florida also continues to be a popular choice with brokers, as with consumers, with almost 23 per cent of brokers suggesting the US holiday destination as a potential investment hotspot, despite the lower house price inflation we have seen in the US recently.
Sales in GE Money Home Lending British Mortgages abroad products in Florida have doubled in the year to date, compared to the same period last year. This bucks the sentiments that investors are in fact moving away from this market. The US economy is clearly going through a period of change, with a slow down in house price inflation across the country, but Florida is still performing relatively strongly with house price inflation at 9.5 per cent.
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This house price inflation, along with the current strength of sterling against the dollar potentially represents a good investment opportunity for those looking for a second home abroad and especially those seeking a longer-term investment opportunity.
Advice
Buying a property abroad is a big decision and most people will do some form of research before taking the plunge. But when it come to seeking advice on how and where to buy, most Brits turn to people they know who have already bought abroad, taking their experiences into account.
This is a valuable source of information, however, as with any big financial decision, many people also look to specialists for the necessary advice. Almost 24 per cent of people turn to an independent financial adviser or broker for their expertise, as well as estate agents and property developers.
Unlike friends, family or other professional such as estate agents or property developers, brokers are in the unique position of not only being able to provide information on the top investment hotspots, but are also able to advise on what mortgage products are available in the marketplace and what product is most suitable for the individual’s needs. Consumers need to use this source of information wisely and to their benefit. The majority of brokers in the country consider buying abroad to be a good long-term property investment for consumers, with only 9 per cent in disagreement.
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Seeking advice can often be a daunting task, but nowadays, with wider access to financial advice, more people buying abroad and the use of the internet for location research, consumers are researching their options more widely. On average though, it is the younger generations who are more likely to consult a variety of sources, including friends, family and advisers before making their purchase, compared to older generations who tend to go directly to one source alone for advice.
Importance of research
Buying abroad can be a life-changing experience and it’s imperative that consumers not only look at the financial aspects but they also look at the other issues which may affect their decision. Failure to seek appropriate financial advice may leave consumers with debts they cannot afford or products that do not meet their individual needs.
When embarking on the buying process, it is also important that consumers ensure they have thoroughly researched their chosen location and that they have sought legal advice on how to buy, what formalities and documentation need to be completed and to have a legal representative to help guide them through any issues which could impede their purchase.
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Brokers can play a valuable part in this process, helping consumers understand the choices they are considering and ensuring they are informed at all time. The three key tips brokers should try to highlight to consumers when buying in a foreign county;
- Seek advice – whether it is from friends, family or a lawyer, it is important to advise consumers to gain information on all aspects of buying their home abroad from as many different resources as possible. In particular those who have already bought abroad can advise whether it is suitable to their lifestyle needs.
- Make checks – taking advice is one thing but it’s also important that consumers take responsibility to check what documents need to be completed to ensure a sale runs smoothly. If buying off-plan, consumers should consult an independent lawyer and not rely solely on the one provided by developers.
- Investigate long-term – as research shows, many consumers are not considering the long-term benefits and investments of buying abroad. Brokers need to ensure that their customers are fully aware of the long-term return of their purchase and what they need to consider in terms of inheritance tax, home improvements and other financial obstacles they may face over time.
