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Buying a second home abroad – the pros and cons
June 25, 2015Article by Kirsty Rose
Buying a buy to let in Barcelona or a holiday home in Florida is certainly more enticing than investing in a drab semi in Swansea or Swindon.
Overseas property can also look dazzlingly affordable compared to the saturated UK housing market, and the prospects also sound brighter as developers lure investors with reports of double-digit annual gains.
Most Britons buy second homes for their holiday or retirement but growing numbers are treating it as a pure investment, tempted by developments promising guaranteed annual yields of 6% or 7%.
There is likely to be a fresh surge in Britons buying abroad as the over-55s take advantage of their new-found pension freedom.
Be warned, sharks swim free in foreign waters and many have already sunk their teeth into the wealth of unwary Britons.
Don’t be an innocent abroad, you need to plan your foreign property adventure very carefully.
Ray Withers, chief executive at investment specialist Property Frontiers, says if you’re looking to purchase more than one property you should spread your risk. “Buying in a range of countries, or even continents, will limit the impact of any regional events or market recession.”
So if your first property is in a holiday resort, balance this with something in a thriving urban centre, Withers says.
Finally, don’t ignore the impact of currency swings, which can wreck all your sums. Around 15,000 Britons came unstuck after buying off-plan properties in Cyprus using Swiss franc mortgages. When the safe haven currency soared in the wake of the financial crisis, their mortgage repayments went through the roof.
Jordan Tilley, head of UK and Europe at UKForex, says currency risk cuts both ways. “The pound’s recovery against the euro is attracting Britons to the continent but it is a dampener for existing investors who will now get less when they convert any gains back into sterling.”
Buying overseas property opens up an exciting world of opportunity but it is also a world of risk.