Assetz® News - Equity release for that place in the sun?

Equity release for that place in the sun?

28th April 2005 |

For most, financing the purchase of a Spanish property is never going to be easy, even if prices are lower than at home. However there are a number of options open to those looking for a new home outside of the UK, including taking out a Spanish mortgage, using personal savings, or taking out an equity release loan.

Many would ideally opt for personal savings to fund their Spanish property investment, but for many the financial burden is simply too great, despite relatively low property prices, and the risk of not getting a good currency exchange rate can act as a further disincentive. As a result Spanish mortgages are rising in popularity among UK buyers prepared to commit to long-term repayments for a property already decided upon. At present, the interest rate of the Central European Bank is fairly low, boosting the appeal of the current mortgage climate. Furthermore, the option of renting out properties when not in use offers a reliable source of income that can be used for mortgage repayments.

Those who are unprepared to take out a Spanish mortgage, and unable to buy a property outright, may find an equity release loan to be the best alternative, particularly in light of current market conditions. Due to the steady rise of property prices in the UK, people's homes are worth more, in turn meaning that they stand to be able to borrow more to fund Spanish purchases. The average house price rose by 0.9 per cent in April and are widely expected to stabilise into 2006.

As well as this, recent trends in the UK market suggest that more Brits are prepared to take out loans. Last month gross lending rose by 13 per cent compared to the same period a year earlier, after a drop in lending of 16 per cent to £55.3 billion in the first quarter of 2005, down from £66 million in the fourth quarter of 2004. According to these the Council of Mortgage Lenders, the fall can be put down to seasonal falls in January and February, which is picking up rapidly as borrowers regain confidence in the market. In particular house purchase and remortgage lending have seen significant increases in March, with lending for house purchase rising to £8 billion from £7 billion in February. Remortgaging, which had fallen by 24 per cent over the fourth quarter in 2004, saw similar improvements, falling at a slower rate than previous.

Nonetheless, there is a concern that the increase in available equity loans resulting from rising UK property prices will not necessarily make it any easier to secure a Spanish property, in light of rising property prices in Spain.

Destinations on low-cost travel routes including Malaga, Madrid and Alicante have all seen significant rises in property prices, drawing closer in line with properties in locations that are traditionally more expensive, but harder to reach. Therefore, buyers hoping to take advantage of an equity loan may be advised to consider a wider range of Spanish regions while remembering that their spending power might not necessarily increase in line with the value of their UK homes.