We have received a whole host of facts, figures and statistics from the homes overseas market in recent days as leading companies release data relating to the numbers of Britons and other foreign nationals who are buying property abroad.
Some of these facts and figures are positively surprising – such as the fact that the amount of property us Brits own overseas collectively amounts to some £58 billion worth of real estate!
But it’s what’s being written and published off the back of all this data that’s worrying us. We want to say to our readers ‘beware!’ because in our opinion there is bad, or at least questionable advice being given to those contemplating buying property abroad.
Yes, we understand the desire to escape to the sun in these dark days of economic gloom and fast approaching winter months, but for anyone about to embark upon a commitment to buy a home overseas, think carefully about your financial situation before you act. We are not saying ‘don’t buy,’ because there are many positive reasons to invest in property abroad still, but all we are saying is be careful how you finance the purchase and what you leave yourself open to in terms of the debt you take on.
In a very well respected industry publication, namely Homes Worldwide, an article was recently published that in our humble opinion constitutes nothing but questionable advice that could result is unmanageable debts and even risking the security of your home in UK. Please note: this is only our opinion and yours may well differ, and we still respect Homes Worldwide as an excellent publication. But the article in question, entitled ‘People Seek Short-Term Loans to Buy in Spain’ actually features quotations from those involved in offering finance to people currently unable to sell their property in the UK and who still want to buy abroad.
According to the article: “a short-term loan allows buyers to secure the foreign home they want and gives them breathing space to arrange an appropriate mortgage.”
No actually, a short-term loan arranged on equity in a UK property during a falling market for those who cannot otherwise get a mortgage, as is insinuated in the article, could well constitute an incredibly expensive mistake!
By taking such a route, an individual is effectively securing the purchase of a property in Spain – another market in freefall in another nation on the brink of recession – on a property in the UK that currently has equity in it, which is probably also mortgaged, but which has no guarantee in terms of the price it will level off at when the market has finished its period of negative adjustment. There is no guarantee that the borrower will then be able to get a mortgage to pay off this secured short-term loan – which probably has a less than favourable interest rate given the current lending situation – because mortgages are scarce. Plus, surely someone who wanted to use the free equity in their UK property would have already considered getting a re-mortgage for equity release purposes – if one was available.
The article also features a quotation that states: “Difficult market conditions in the UK mean many are unable to sell their home, but the capital from a bridging loan secured against free equity is often sufficient for them to take advantage of property bargains overseas.” Traditionally bridging loans are expensive – interest charges mount up and up – and a bridging loan is a bridge, (see, there’s a clue in the name!), for those who are selling a home and buying another property. They are not for those attempting to raise a mortgage in an economic climate when there are fewer and fewer mortgages available.
For those contemplating a purchase of a property abroad – go for it but only when you are sure of your finances. Don’t take a risk on your UK property just to realise a dream of owning a home abroad. Be prudent in these tough financial times, don’t do as the government has done and borrow what you can’t pay back and don’t get yourself into a difficult financial situation when there are fewer bail out options.