As a nation Britain is known for being property mad. But in recent years this madness has turned to genuine insanity. People have been buying off-plan properties in eastern European cities they probably couldn’t point to on a map. But the latest data from the Knight Frank Global House Price Index suggests that sanity is returning to the markets, which could be very expensive for many foreign-home owners.
Ten years ago France and Spain were the top destinations for Britons buying abroad, with prices booming 210% and 270% respectively in the past decade. As a result, bargain hunters headed further afield, creating a ripple effect in property prices. But while some parts of Europe attracted investors for sound reasons – such as beautiful weather and stable developed economies – in the East, price growth has been based on little more than vague hopes of an EU-fuelled boom and the fact that houses are cheap by UK standards. Anyone visiting Bucharest, for example, will concede that while parts of Romania enjoy truly beautiful countryside, the capital city has little to offer to anyone except the most determined connoisseur of Soviet architecture.
These markets have been over-inflated by speculators piling in while giving little thought to who will buy their property when they want to cash in their gains. “The resale markets in some less-developed locations are yet to be fully tested,” says Richard Exton of Barclays Buying Abroad in the Financial Times.
Finding a buyer is going to get harder. Locals are being priced out of the market, leaving sellers reliant on selling to other foreigners – who won’t be interested if they believe the big gains have already been made. On top of this, prices in Western Europe are starting to slide. Inflation in Spain has halved in the last year to 5.7% and in France prices rose just 3.2% this year. A glut of property is part of the problem: in Spain an estimated 300,000 flats are lying empty. But rising interest rates are also hitting affordability as foreign and British mortgage rates rise.
The holiday-home market has largely been propped up by the UK housing boom, with people taking equity out of their homes to buy second homes abroad. But with credit tightening, the holiday market is likely to be hit hard as people try to sell in order to fund rising UK mortgage costs. And who’ll want to buy in Romania when the Loire Valley becomes affordable again?