As featured in the July/August 2010 edition of Your Mortgage magazine

Homes overseas

Bargain property prices and historically low interest rates are pulling Brits abroad, despite the weak pound, says Clare Nessling

Despite the UK property slump and the struggling pound, the overseas property market is alive and well forBritish investors, and there's definitely a growing feeling of confidence amongst prospective buyers.

Contrary to the turbulence unleashed on the UK mortgage market by the global banking crisis, overseas mortgage providers have a healthy appetite for lending to foreign investors. But a combination of factors, not just mortgage availability, is ributing to this renewed interest from buyers. Falling property prices, in some cases by up to 50 per cent, and historically low interest rates are making it much more affordable to buy overseas property, effectively cancelling out losses on the exchange rate.

Current hot spots

Conti, an overseas mortgage specialist, has just experienced its busiest couple of months for almost a year in terms of mortgage 'go aheads', the point where prospective buyers take their mortgage quotes through to the application stage.

The most popular destinations among our clients are still France and Spain, both of which come with easy access and good rental opportunities. Enquiries for both locations have increased considerably over the last 18 months, as investors continue to stick to locations they know and trust.

France continues to enjoy a very stable market, primarily due to its financial system having been more cautious in the past. As it's in a relatively secure situation, it's still possible for to borrow up to 100 per cent of the value of a property. France has become an increasingly attractive investment option, not least because of very low interest rates (some below three per cent at the time of writing), but also due to lower property prices, with many sellers dropping their prices to levels we have not seen for several years. It's definitely a buyers' market.

Buyers of Spanish property are also in a strong position due to the number of homes available, low interest rates, and the opportunity to negotiate price reductions from some very motivated vendors. Prices in some areas, such as the Costa del Sol, have plummeted by 40 per cent since the peak in 2006/7. Spain is still willing to lend to non-residents and you can still generally borrow up to 70 per cent of the value of a property. Spain has been at the forefront of the overseas property market for a long time, so has very strong foundations. You can still buy with confidence, as long as you buy wisely and treat your property as a long-term investment.

Turkey, often referred to as the 'new Spain', is our third most popular location and offers some great property prices and all the benefits of its Mediterranean location, minus the effects of the euro exchange rate. Tourism has risen dramatically over the last few years, which will ensure that demand for quality rental properties in the popular tourist areas will continue to outstrip supply, making rental yields very lucrative.

In joint fourth place are the USA and Portugal. The big hot spot in the USA is Florida, where property prices have fallen off a cliff over the last couple of years, with many homes being sold for less than it cost to build them. Repossessions should decline in number now that the USA has come out of recession, and with prices at around half of their 2007 levels, there are definitely bargains to be had. Many local experts believe that prices now have nowhere to go but up, a home bought at today's bargain levels could be a healthy investment over the longer term, as values appreciate slowly and steadily.

Portugal continues to be a big bit with British buyers. With property prices down by 30 per cent in some locations, it's a good time to invest. The Algarve is a particular favourite, but with holidaymakers too, so rental opportunities are good. With its economy now firmly out of recession, it has also weathered the downturn better than Spain thanks to less over-development and speculation.

Beating the poor exchange rate

When it comes to finance, we're seeing an increasing number of British investors buying second homes in Europe with euro-denominated mortgages in order to beat the poor exchange rate. This not only allows them to take advantage of cheap interest rates, but could potentially save them significant sums of money if, as experts predict, sterling appreciates against the euro over the next few years, as this will reduce the sterling cost of the property purchase.

This means that a euro mortgage could be a good idea, even if you thought you didn't need one. As you'll only need to transfer money for your deposit and fees for now, it minimises the amount of sterling you have to exchange for the purchase. Even if you're lucky enough to be a cash buyer, it may be worth taking out a mortgage until the exchange rate improves, at which point you can pay it back, and ultimately reduce the price you pay for the property.

But one of the biggest advantages of taking out a mortgage is that the lender, similar to those in the UK, 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. Banks will also check other issues such as planning permissions and building licences - and provide you with valuable peace of mind about the purchase.

Case study

Kirsty Durman, aged 29, from Dorset, has recently purchased an apartment in Val-d'Isére, one of the most popular ski resorts in the French Alps. It's a one-bed property, which she describes as 'compact but with everything you could need' and is located in the heart of the town, with a fantastic view over the mountains. Being a keen skier, Kirsty says it's the ideal purchase, especially as this region is also fantastic for walking and mountain biking, so it's a 12-month season, and perfect for year-round holiday rentals.

The apartment, which Kirsty bought with the help of her mother Viv, cost &eureo;150,000. She took out a euro-denominated mortgage to finance the purchase, and opted for a three-year fixed rate of 2.4 per cent. To help cover mortgage costs, Kirsty intends to rent her property out, with the income going straight into a French bank account from where she will make the monthly mortgage repayments. This way, she can avoid exchange rate fluctuations.

Kirsty arranged her mortgage though Conti and found the whole process very pain-free. She says: "Going through a specialist broker made the whole experience much smoother and easier, and I was kept informed at every stage. The advisors couldn't have been more helpful. Not only were they able to source the best possible deal for me, they also took the pressure off the whole situation from start to finish and saved me a lot of time, cost and hassle."

Clare Nessling is operations director at Conti, the overseas mortgage specialist Call 01273 772811 or visit www.mortgagesoverseas.com