That’s amore!

As featured in the September/October edition of Your Mortgage magazine

With property prices expected to remain low in the short term and the pound trading strongly against the euro, opportunities in the Italian property market are ripe for the taking, says Clare Nessling

Italy is never far from people’s minds when they dream of a buying a home overseas. It caters for every taste, from the traditional offerings of Tuscany to the relatively undiscovered region of Abruzzo, and from the ancient ruins of Rome to the fashion capital of Milan.

The country offers breathtaking landscape, shimmering lakes, stunning architecture, and glorious food and wine, and many people who invest in property there say they’re buying into the sought-after Italian lifestyle. And with a good choice of flights from the UK, the ease and cost of travelling to Italy have never been better.

The property market, overall, is around 25 per cent below 2008 without being overvalued, according to i-RES (Italian Real Estate Solutions) and prices are generally expected to remain low in the short term. Alongside this, the pound has been gaining strength against the euro, so affordability is really good at the moment and it appears that the Italian dream may be more accessible than ever.  

Surprisingly stable market

Italy has by no means escaped the effects of the global downturn which resulted in its longest economic recession in 60 years. Property prices have been on a declining trend for some time and have come down by 4.8 per cent since last year according to the Knight Frank Global House Price Index. According to Fitch, further nominal declines of around four per cent are expected by the end of this year.

The country, however, is considered as a relatively stable market when compared with other European countries. It was never heavily involved in the sub-prime lending market, nor has it suffered the effects of the over-development of property, like Spain. Italian homeowners buy houses to live in rather than as an investment and, on average, move only once every 20 years. Prices, therefore, have remained relatively more realistic and have had less room to fall.

The country is not immune, however, to the slower market. It has seen purchases of property halve since 2006, as the sovereign debt crisis led to disposable income being cut and access to loans becoming more expensive and difficult. The good news, however, is that transactions are expected to increase this year, with real estate expert Breglia forecasting them to rebound by 10 per cent in 2014 from a 30 year low in 2013.

The net result is that Italian property represents very good value and many overseas investors, feeling more confident about the market, are making their move before they miss out on the best opportunities. And there’s plenty of room for some price negotiation with very motivated vendors.

Hot spots

Tuscany is still a favourite with British buyers and has been so popular in the past that that the Chianti area has been nicknamed ‘Chiantishire’.  Home to exquisite cities such as Florence, Lucca and Pisa, Tuscany boasts a stunning 170-mile coastline and a number of charming places to house hunt.Properties here do come with a higher price tag, however.   

The Italian lakes are also popular, with most interest being concentrated around Lake Maggiore and Lake Como. Maggiore is less than an hour away from Milan, so very accessible. Lake Como, popular with the jet set, offers an excellent choice of properties, and although prices are relatively high, an oversupply of flats and smaller properties  just inland means there are some good deals available.

Often referred to as ‘the green heart of Italy’, Umbria is centrally located and a lot less expensive due to it being less easily accessible. If you intend to let out your property, this area could be a very good choice as the rental market is strong.   

Calabria and Puglia are relatively new hot spots. Calabria is still a predominantly agricultural society with fewer transport connections and a less-established market, so prices are lower. Puglia has also been growing in popularity, thanks to low-cost flights to Bari and Brindisi which make it much more accessible.

Newer to overseas investors is Abruzzo, a stunning area to the east of Rome on the Adriatic Sea.  It has only recently opened up to tourists via budget flights to Pescara, and as it’s still relatively undiscovered, prices are lower and it’s a more affordable option for British buyers. 

Arranging finance

Lending to foreign nationals has been restricted over recent years, but the Italian mortgage market is starting to open up again with new lenders coming on board. Purchases are still limited to higher value properties, however, with a minimum loan of €250,000. The maximum loan-to-value is 80 per cent, loans are on a repayment basis and rates are currently start from around three per cent to four per cent.

Obtaining an approval in principle, which costs nothing, will tell you exactly how much you can borrow and what price range you can realistically consider when conducting your property search. Remember that bills don’t end at the asking price. Costs such as lawyer’s fees, local and national taxes, and insurance must all be met, and can often add up to 15 per cent to your cost of acquisition.

You should also bear in mind that in Italy, only euro-denominated mortgages are available to overseas buyers. If you intend to rent your property out, the rental income will be in euros, so the rent received could be held in your Italian bank account and used to make the monthly repayments, thus avoiding exchange rate fluctuations.

More bang for your euro

Thanks to the strong pound, affordability has been boosted for British buyers. At the time of writing*, sterling has risen to a 22-month high of €1.26. When you consider that it was only in the summer of 2013 that it was around €1.14, the difference is pretty significant when you translate it into property prices. It means that for someone considering a home in Italy worth €250,000, the property now costs £198,413 compared with £219,298 at the start of August 2013. That’s a saving of £20,885. Not bad.

Do your homework and seek advice

Don’t let your heart rule your head. It may seem obvious, but it’s all too easy to get carried away when you decide to buy overseas.  You should always go through the same process that you would follow if you were buying a property in the UK. Take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.  And ensure that an independent valuation of the property is carried out, which should point out any problems.

Top tips

Obtain a mortgage ‘approval in principle’

This will confirm that you can obtain the necessary funds before deciding on a property

Currency

We generally advise that an overseas mortgage and the income used to service the repayments should be in the same currency, to avoid any exchange rate issues.

Seek professional advice

Take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.

Factor in additional costs

Lawyer’s fees, local and national taxes, and insurance must all be met, and can add up to 15 per cent to the cost of your purchase.

Consider using a mortgage broker

A broker will source the best possible mortgage deal and ensure the whole process is taken care of, from start to finish.

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