In the UK consumers have become used to regulation protecting them in all sorts of scenarios, from house purchasing to ensuring that the medicines they use are tested and approved.
The main benefit of regulation is that it allows consumers to buy with confidence, knowing they are protected by laws and codes of conduct designed for their benefit. They also have a clear route of redress if things go wrong.
Regulation has been embraced by the mortgage industry. Residential brokers now have to pass CeMAP and competency tests prior to being authorised to offer advice to borrowers.
Once authorised they have to follow strict regulatory guidelines laid down by the Financial Services Authority to ensure clients receive the best advice at all times.
This regime is further reinforced by the Treating Customers Fairly initiative, which covers all aspects of the consumer-broker relationship.
TCF forces brokers to analyse their business management information and use it to prove they are conforming with the initiative.
Consumers know the basic principles of the house buying process and are aware of the pitfalls.
They understand the need to ensure properties are structurally sound and are worth the agreed purchase price.
Clients know to instruct valuers that are also governed by regulation. And they can be confident their solicitors and brokers will look after their interests throughout the mortgage process.
But in the overseas property market none of the above applies.
The mantra of the overseas market is buyer beware as there’s no regulation to protect consumers. For example, European brokers don’t have to be qualified, comply with regulation nor have any experience or knowledge of the markets in which they operate.
They are not required to give best advice or follow TCF-style rules. Despite this they can still charge clients upfront fees for only basic help or advice. To make matters worse, these fees are often substantial.
Overseas property developers and real estate agents are also unregulated and may not operate with the best interests of buyers in mind.
The problems that can befall UK customers when they buy abroad have been regularly documented by the media. The problems arising from the absence of regulatory oversight range from minor issues that lead to delays and frustration to much more serious concerns.
These can lead to clients losing their dream homes overseas and in some cases their UK properties as well.
The recent case of a retired British couple losing their villa to the bulldozers in a planning dispute in Spain is a case in point.
And these problems can be exacerbated when clients don’t use solicitors specialising in the European market.
Misconceptions add to confusion
Many consumers rely solely on the services of notaries when buying in Europe. They assume that notaries are the same as solicitors in the UK but this isn’t the case.
Notaries are simply civil servants working on behalf of government. Their only duty is to ensure the relevant documents are signed and ex-changed and the correct amount of tax is paid. They offer no advice or protection within the buying process.
So how can UK brokers protect their clients as they may not be experts in the overseas arena?
Referring customers to specialists while ensuring they retain ownership of them is vital.
They need to know these experts will offer the same level of protection and advice that UK brokers provide.
Refer to regulated firms
Brokers must work with FSA-regulated companies that employ qualified brokers specialising in the overseas market.
They need to know these experts won’t charge fees and will provide unbiased advice prior to clients committing to deals and paying substantial deposits.
The goal should be offering customers added value without costing them any money.
Fully regulated brokers will offer overseas clients the same protection and advice they receive back home.
This offers customers security and peace of mind. The latter is often maligned as a trite phrase but it is vital when purchasing overseas.
It’s important to source free expert advice as the overseas market tends to have tighter affordability criteria than the UK.
Overseas lenders offer substantially lower LTVs and affordability ratios than is usual in the UK and this is still the case even with the ongoing liquidity crisis. These restrictions come as a nasty surprise to many domestic clients used to the pre-credit crunch environment of flexible criteria, higher LTVs and numerous products.
Customers go abroad on inspection trips, find the property of their dreams and immediately put down substantial deposits on the assumption that finance won’t be an issue.
They believe they know how much they can afford and that obtaining mortgages will be easy.
It’s a common misconception that overseas LTVs are the same as in the UK and that obtaining finance is an automatic process.
The unfortunate result of this misconception is that many clients lose their deposits.
But this heartache can easily be avoided if brokers refer their clients to the experts as soon as they consider buying abroad.
By doing so, brokers can prove their TCF credentials, protect their clients while ensuring they receive referral fees equivalent to the proc fees generated by UK mortgage deals.
With brokers struggling with declining residential business, the demise of the sub-prime market and higher regulatory costs, they owe it to themselves and their clients to refer them to overseas experts.
Of course it does not end there. Customers should be advised to employ the services of English-speaking lawyers or UK-based solicitors specialising in the overseas market.
They will work on clients’ behalf by dealing with developers, estate agents, lenders and notaries, ensuring their needs are protected.
Another source of protection for borrowers is offered by UK-based organisation Approved Properties Abroad.
Its remit is to ensure the developments it approves have been vetted thoroughly.
The APA checks that planning permission from all relevant parties has been given and that building regulations are in place.
It also ensures that local and regional searches are made to identify potential problems.
Finally, it carries out financial checks on the developers involved and scrutinises their fi- nancial stability.
In these days of failing or bankrupt developers and planning disputes that can end with the bulldozers’ arrival, the APA gives additional security to potential buyers.
By working with regulated overseas specialists, brokers can ensure their clients are protected while maintaining valuable relationships with them and receiving fees.
Most importantly, they can also prevent the heartache many clients experience when buying abroad.