Stuart Law is managing director of Assetz
The Spanish mortgage scam by Michael Doust unearthed recently allegedly operated over an 18-month period from Dominion Beach in Estepona. Prospective borrowers were persuaded to pay administration and inflated valuation fees for mortgages that were never provided. This is the first scam of its kind I have heard of and is by no means the norm.There is often less transparency abroad but buying properties in major European destinations with overseas mortgages is now a well trodden path. Investors can protect themselves from risk by taking simple measures such as only dealing with reputable lenders and researching their options carefully, rather than taking the advice of foreign agents and representatives who may not have the buyer’s interests at heart. Some minor risks are worth taking in order to benefit from the advantages of overseas mortgages. Investors buying property overseas can reduce their potential loss from currency exchange rate swings by taking out a mortgage in the country in which they are buying, as is evident when looking at the situation for UK nationals buying in the US. The value of the US dollar has fallen from $1.75 against 1 sterling in April to $1.88, which equates to a 7% loss of capital for British investors who bought in the US for cash or remortgaged their UK home to buy there last year. But those who took out American mortgages will have seen the sterling value of their debts falling by the same amount, reducing their losses to just 7% of their deposits. Even if a local currency mortgage is used it should be noted that the deposit on the property is still at risk, which reinforces the overseas property investment trend toward buying with minimal equity in sterling.
Tony Jones is managing directorof Pink Home Loans
Yes, there are risks in-volved, whether looking to buy a house abroad for retirement purposes, a holiday home or as an investment. Borrowers are committing a substantial amount of capital and must take the necessary actions to mitigate the risks as far as possible.People buying abroad are generally less familiar with the buying process – a British man was recently arrested for an alleged scam producing fake mortgage offers for overseas properties. But this shouldn’t necessarily put off anyone investing abroad as the same situation could arise in the UK. Buying abroad is significantly different to buying in this country, and furthermore each country has different issues. For example, a number of countries such as Denmark require estate agents to be licensed and qualified. This is not the case in most other countries, including the UK. Buying property off-plan has its risks as instalments are required throughout the building process. Exchange rates may fluctuate markedly during this time, meaning the balance could rise dramatically. When taking out a mortgage in a foreign currency the exchange rate will affect monthly repayments. There may also be risks in some emerging markets due to political instability. But steps can be taken to reduce many of these risks. Clients should not rely on solicitors recommended by foreign estate agents. Also, exchange companies will offer guidance and provide forward contracts to mitigate the risk of currency fluctuations. Investors should see the purchase of an overseas property as part of building a balanced portfolio. Those with a cautious approach will look to established countries such as France but others with an appetite for risk will focus on emerging markets which offer the possibility of higher returns.