First-time homebuyers have never had it so tough, and they are resorting to bolder schemes to get one foot on a rung of the ever-ascending property ladder. Two-fifths of them are holding down two jobs, says Bradford & Bingley building society, 42% are receiving help from their parents to buy their first property and 43% have even thought about giving up buying altogether. So it comes as little surprise that nearly half of 18 to 29-year-olds surveyed in a recent YouGov poll plan on buying abroad. But is this really a sure-fire way of getting something of value to your name?
First-time buyers: investing in property abroad
Absolutely, says Mark Bodega of foreign currency broker HIFX in The Independent on Sunday: “overseas property offers first-time buyers an investment they could never have afforded back home”. David Smith, sales manager at estate agency Bulgarian Dreams, agrees. He tells the Sunday Express that not only can upfront costs be fairly low, but in some areas, where annual hikes of 25% are being reported, buyers could “nearly double their money” in five years.
Unfortunately, many are overestimating the ease with which they can buy overseas property. Lenders are hesitant to grant large mortgages to first-time buyers looking abroad, and with “countries such as Morocco and Turkey it can often be impossible to obtain loans”, says Michael Tierney, director of Terranova Overseas Property in the Sunday Express. Even in established overseas property haunts such as Spain and France, lenders will require buyers to have large LTVs. “The maximum LTV we would give a first-time buyer in Spain is 70%,” says Ian Smith, head of European operations at Halifax, also in the Sunday Express.
The currency risks are often overlooked by buyers as well, unaware of the dangers posed to their repayments by currency fluctuations, says Simon Conn, managing director of Conti Financial Services. “Exchange rate movements may increase the sterling equivalent of your liability under a foreign currency mortgage,” he tells The Observer. For example, a property bought for €250,000 on 1 March 2006 would have cost £167,836, but a month later on 5 April, it would have been £175,523, says The Independent on Sunday.
First-time buyers: unaware of the risks
A major problem is what Nicola Venning in The Mail on Sunday calls “the unshakeable notion that property always increases in value”. Warning that many first-time buyers are unaware of the dangers, Mark Chilton of broker Purely Mortgages says buying abroad is “a big risk as you are gambling on capital appreciation”. He tells The Independent on Sunday that “first-time buyers are the least experienced and least equipped buyers in the mortgage market. Making such a big investment decision requires careful research.”
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However, evidence shows that many are ignoring the risks, blindly purchasing property without even viewing it beforehand. “It is ridiculously dangerous to do this,” says David Hollingworth of London & Country Mortgages, in the Sunday Express. He warns that many buyers are getting carried away with reports of high capital growth and rental income. “There continue to be horror stories about people losing their money on homes overseas, and not seeing a place before you buy it increases that risk,” he says.
First-time buyers: wait for a correction?
So what are first-time buyers to do? Their average age has increased to 34, and they only make up about 12.2% of the property market today, against 50% in the late Eighties, according to the National Association of Estate Agents. There are options closer to home, and the Government is stepping in to help. The stamp duty threshold has already been raised to £125,000 from £120,000, while 23 HomeBuy agents across the UK will help fill 35,000 houses over the next two years under the Housing Corporation’s £3.9bn National Affordable Housing Programme, says the Daily Mail. In fact, many well-known housebuilders are trying to attract first-time buyers with incentives such as paying the stamp duty or half the deposit, says the Mail. Higgins Homes is aiming a new development in Dagenham, east London, at first-time buyers, offering to pay half of the 10% deposit with prices starting at £139,995.
But first-time buyers are surely mad if they think they can easily jump onto the property bandwagon at home by buying abroad. So keen are they on riding it, that they seem blissfully ignorant of the costs and headaches associated with everything from managing the properties to dealing with a possible housing crash. That blind obsession has yet again come to the fore, with the conception of a website called Sharedspaces.co.uk.
Its aim is to help first-time buyers find suitable housemates to buy a
house with.
However, as Ray Boulger, senior technical manager at John Charcol, the UK mortgage broker, tells the FT: “I think it’s a dangerous way to go into buying a property. Entering into a mortgage agreement like that too quickly could be a recipe for disaster.” Andrew Selsby of RH Asset Management agrees, “If first-time buyers can’t get into the market by normal means, it shows how affordability has gone out the window. It’s a sign of a market top, and I don’t think we’re far off a correction. It’s already happening in the US.”
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See our investing in property section for a full list of articles on subjects such as interest-only mortgages, London property, whether or not you should rely on your home as a pension and James Ferguson on when the housing bubble will burst.