Britons Face Big Losses on Holiday Homes in Bulgaria
By Claer Barrett
British owners of second homes overseas are facing ruinous losses on their investments after plunging price drops in foreign markets wiped as much as £24bn from the value of UK-owned homes abroad, new research shows.
Dubai and Bulgaria are the worst hit markets, with reported peak-to-trough price falls of 75 per cent on property built for the in-vestment market, according to a report in the Investors Chronicle, the Financial Times' sister publication. The high levels of debt used to engineer transactions have ratcheted up the risk of financial problems for purchasers following the collapse of property markets.
Owning a second home abroad was once the preserve of the super-wealthy, but in the past decade a heady combination of TV property shows and cheap mortgages has convinced an estimated half a million Britons to buy their own place in the sun. The value of UK-owned foreign property investments peaked at £58bn last year, up from £10bn in 2000.
Conti, a UK-based foreign mortgage broker, claims all mortgage products for overseas buyers in Bulgaria have been withdrawn, and are no longer available on apartments in Dubai, effectively trapping thousands in the market. Oversupply and weak demand mean investors' mortgage repayments cannot be covered by rental income, leaving speculators with a huge debt and an unsaleable asset.
For those who need to get out, the only hope is a cash offer from a growing band of "acquirement firms" which focus on distressed assets. In Bulgaria, flats on the Black Sea coast which were sold for €60,000 (£53,000) to British investors are now changing hands for €15,000 or less.
Figures from property consultancy Savills show that at the market's height, 80 per cent of foreign property purchases were being financed by mortgage debt, compared with just 20 per cent seven years previously. The extent of price falls across foreign markets means that most of the 35,000 Britons who completed deals in the 2007-08 financial year will already be in negative equity.
Before the slump, buyers believed that capital appreciation would enable them to sell out at a profit to another investor - a classic "greater fool" market. Yet investor-driven developments have little appeal to domestic home hunters, so liquidity has evaporated.
In Spain, 1m newly built apartments remain unsold, and a further 2m are estimated to be back on the re-sale market as foreign buyers retreat. The newly built properties alone account for five years of supply, based on current sales rates, and local experts believe prices have already fallen by 30 per cent.
In Florida, where an estimated 70,000 Britons have bought second homes in the past decade, prices are said to have fallen 40 per cent, with some properties on investor-driven developments selling for below their building costs as buyers rush to exit.
Foreign banks are also seeking to chase their losses in the UK in the event of mortgage default. Since last Christmas, EU creditors can pursue a European order for payment which makes the process of debt recovery easier and cheaper.
"There hasn't been a sudden rise since the legislation was introduced, but we are getting a steady trickle of cases where people are in situations abroad that haven't worked out," said Paul Connearn, a spokesperson for the National Debt Helpline. "Creditors could try and enforce the debt through a charging order on UK assets, typically the family home. This secures the debt on that property, but doesn't necessarily force the sale."
"In my experience, US banks will no longer lend to the British as so many have handed the keys back and done a runner," said And-rew Bartlett, a Florida-based relocation consultant. "Certain banks now believe it is worth pursuing unpaid loans in the UK under UK law."
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