There’s little the British like more than buying houses – particularly cheap houses abroad. In 1995, just over 100,000 of us bought a holiday home overseas; this year around 300,000 will do so. However, just as soaring domestic demand has driven up prices at home, so our manic buying abroad has driven up prices elsewhere (see chart below). Today, houses in the most popular countries – such as Spain and France – are beyond the reach of many buyers. Over the last ten years, prices in France have risen at 8% a year, and the regions most loved by the British (Provence, the Dordogne, Bordeaux and Brittany) have seen even stronger growth. Our view at MoneyWeek is generally that if you can’t afford something, you shouldn’t buy it. Unfortunately, this is not a view shared by many others. The result? The invention of some rather outlandish methods marketed as affordable ways to secure a “bolt hole” across the Channel. Here are two that we think you should be avoiding.
Buying abroad: Reversion schemes
One option being pitched to UK investors in France is the ‘viager’, or reversion scheme. This is a bit like being the buyer in a UK equity-release scheme, says The Times. You pay the seller of the house in question a lump sum upfront for the ownership of the house, but you don’t get the house immediately. Your ownership rights don’t kick in until the seller dies: until then, they get to keep living in the house and you also pay them a monthly income. The price of the home is fixed using a combination of the market price and mortality tables. So as financial adviser Rupert Holderness tells The Times, it’s basically a bet “on the length of someone’s life. If the seller dies before the mortality tables say they should, then the purchaser has a very cheap property.” Of course, the flipside is that the longer the seller lives, the more expensive the home becomes for the buyer. Pity, for example, the notaire who had the misfortune to buy ‘en viager’ from
Jeanne Calment in 1965. Calment
went on to become the oldest woman in the world. By the time she was celebrating her 122nd birthday, she had outlived the notaire, forcing his children to take over paying the monthly sum agreed under the original deal.
Buying abroad: Fractional ownership schemes
Another scheme sold as a cheap way in to foreign property is fractional ownership. The idea is simple: instead of one buyer owning 100% of a house, the year is split into segments and individual owners can buy as many segments as they require. Two years ago you could, for example, have bought a three-week share in French Heritage Associates’ Normandy chateau, St Marie du Mont for £52,000.
You might think this sounds similar to a time share, says Faith Glasgow in Money Observer, but there is a difference. With a time share, you are only buying access to a property; with this scheme you actually own your share in the property. Ownership may come as a share in a UK firm set up specifically to own the property, or simply by registering the title deeds on the national register (in the names of all the owners). The plus point is that you get to keep capital gains made when you sell. But we wonder if, in the case of properties such as the chateau mentioned above, there will really be any. Aside from the original cost for your three weeks, you have to pay service charges of £1,200 a year. That’s £400 a week – more than the cost of a mortgage on a whole house. And because you share the home with other owners, leaving essentials such as clothes and toiletries between visits, let alone ‘stamping your mark’ on the property, is impossible. There’s also no chance of taking an impulsive weekend away, as you’re restricted to the weeks that you ‘own’. The upshot is that fractional ownership gives you all of the cost and none of the advantages of home ownership. Our advice? Keep your money to rent a large villa for three weeks every summer instead.