Buying property abroad mortgage
Britons looking to pick up a bargain home in the sun as prices in popular locations take a nosedive risk coming unstuck unless they heed warnings from a generation of buyers whose retirement dreams have turned into disaster.
Many people who bought in countries such as Spain and Cyprus before the financial crisis remain embroiled in expensive legal battles. Some live with the threat of seeing their foreign home torn down, while others risk losing their UK property.
Yet the foreign property dream is still alive, with 5.4 million Britons considering buying abroad, even more than before the financial crisis, according to the latest research by HSBC. Of these, nearly 600, 000 said they would definitely buy a foreign getaway. Spain and the Balearic islands are the number one destination, tempting 30% of buyers, followed by France at 16% and Italy at 9.5%. Portugal, Greece, Cyprus, the Caribbean, Florida and Turkey are also popular.
Buyers are attracted by a combination of cheap mortgage rates and plunging property prices, which help to offset the slide in the value of the pound, still down 20% against the euro since the financial crisis. House prices in Spain have slumped, falling by an average 50% since 2007. In some regions, homes once worth more than £2m now sell for just a third of this sum.
Buyers should do careful research and take independent legal advice if they are to avoid getting burned, as many Britons can testify.
In 2002, John and Maura Hillen invested £200, 000 in an off-plan property in the Almanzora Valley, Andalucia, only to discover their developer had failed to secure planning permission. Maura says: "We only discovered the truth just before we made the final payment in 2006, when the Guardia Civil phoned to tell us our property was illegally constructed and was facing demolition."
John, 59, and Maura, 50, who both worked as IT project managers, were relatively lucky. Legal proceedings against the developer collapsed, and their property was reprieved. "This still left us with legal bills, a sense that the developer had got away with it, and a property that wasn't properly registered, " she says.
Maura is now president of campaign group AUAN, which is seeking legal redress for British expats who bought illegal properties in Almanzora during the construction boom, many of which have no mains water or electricity.
Another British couple, retired bank managers Ray and Louise Byrne, have spent the past nine years fighting legal cases after their Spanish property purchase turned sour because of similar problems with planning permission. Ray says: "When the police told us our house was illegal, they promptly arrested me. We had to attend an interrogation, not an interview, in an isolated log cabin in the mountains, which was daunting to say the least."
Retired pollution control engineer Robert Marsh, 73, and his wife Gillian, 69, a retired optical adviser, moved to Spain eight years ago in search of a better life, only to end up in a long legal battle with local builders and officials.
The couple sold their home in Stockbury, Kent, in 2005, and bought a three-bedroom villa in Albox, Almeria, for €310, 000, but their retirement home has since been declared illegal.
Robert says corruption in Spanish town halls is rampant. "Officials and mayors are willing to grant building permits where they have no authority to do so. The penalties for corrupt officials are pitiful."
The Marsh's case is scheduled for a final hearing in September, but Robert isn't hopeful: "The verdict is most likely to be for the demolition of the house."
He warns buyers against trying to secure a bargain in Spain. "Stay at home or go elsewhere. Otherwise you risk years of worry. Only buy if you have an honest and competent lawyer. Where you find one is another matter."
For those keen for a home on sunny shores, despite the horror stories, there is plenty of advice. Stefano Lucatello, senior partner at multinational law firm Kobalt Law, which specialises in advising Britons buying property overseas, says before parting with any money you should instruct a specialist English property lawyer to advise on all contracts and documents, and prepare a proper due diligence report.
"You need somebody who understands the law of your chosen country, and speaks the language fluently. Don't use someone recommended by your developer or estate agent, they may not have your best interests at heart."
Your solicitor must also check that you have the right planning consent and licences, your property has the correct title, and you are registered as the official owner, says Clare Nessling, director at Conti Mortgages Overseas. You should also pay for an independent valuation as you would with a UK property purchase to highlight problems such as subsidence and boundary disputes, she adds.
Sticking to popular property hotspots gives you further protection, adds Lawrence Hall of PrimeLocation.com. "Top resorts will see the best returns when the market returns to some sort of normality, and should prove resilient if things take a backward step."
Meanwhile, Mark Stucklin, who runs specialist website Spanish Property Insight, advises against being rushed into a decision. "The Spanish economy is in recession, the housing market is still on its knees, and will be for some years to come. Anybody who predicts a fast turnaround in prices is pushing their own agenda."