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The Times

 

Homeward bound? Expats feel the pinch

06.03.10

By Mark Bridge
 
The expat dream has soured badly for thousands of Britons who have been hit by the fall of sterling against the euro and tumbles in overseas property prices. A recent survey for Moneycorp, the foreign exchange provider, indicates that 70 per cent of expats are considering a return to Britain.

 

Coming home is a daunting move and not one that can be reversed easily. So, is it time for eurozone expats to cut their losses and run? Or are there other ways to get back into financial shape?

 

One couple who have decided to return to this country are Roger and Andrea Cape, who retired to Con on the Costa del Sol, in Spain, eight years ago. Mr Cape, 67, says: Our money went a long way then because sterling was so strong. We sold a two-bedroom bungalow in Rochdale and were able to upgrade to our dream villa.

 

Since then, however, the decline of the pound (from 1.6 in 2002 to 1.1 today) has hammered the spending power of Mr Capes UK-based firemans pension. They cannot afford to go out as often as before and sometimes make the three-hour round-trip to Gibraltar to shop in sterling.

 

Pushed by the higher cost of living and pkeep of their four-bedroom home, the Capes put the house on the market a year ago. But they have been unable to sell, because of falls in the Spanish property market, which has a glut of villas. Its now on at 399,000 (360,000), says Mr Cape. Eighteen months ago, we could have got 500,000-plus, no problem.

 

He hopes that they will be able to sell soon and buy a home in Lancashire similar in size to the one they left in 2002. He adds: We will miss Spain and the lifestyle, but will see a lot more of our five children and four grandchildren.

 

Sean Adams, of Savills Private Finance, says that other would-be sellers should not assume that falls in the euro value of their property equal a real-terms loss. A client of mine recently sold his home in France at a price that he thought was disappointing. Once he had exchanged the money into pounds, he saw that he had made a 20 per cent net gain. That puts him in an excellent position, given falls in the market back home.

 

Mr Adams attributes part of his clients gain to securing a good rate from a foreign exchange broker. Companies such as Moneycorp and Caxton FX undercut the rates and charges offered by most banks. Dennis Hall, of Yellowtail, the independent financial adviser, says: Using a broker is a must it can save you as much as 500 on a 10,000 transfer.

 

It is important to approach brokers before completing a sale because they can advise on how to secure the best deal. For example, it is much cheaper to transfer a bankers draft (often paid on completion in European property deals) straight to a UK account than to pay it into a foreign account first.

 

Before rushing to sell, however, Mr Adams says that expats should consider whether the price of their property is likely to recover anytime soon. He adds: We are seeing renewed demand in popular areas, such as parts of southern Spain and the Balearic Islands.

 

Owners in places where there are positive signs should consider waiting to see where prices go. A stop-gap would be to let the property in euros and to rent somewhere to live back home paying sterling.

 

Savills upbeat forecast for Spain is not widely held. Louise Reynolds, of Property Venture, believes that the Spanish market is unlikely to recover before 2016. Whether owners can afford to wait will depend on their income, savings and investments. Tom McPhail, of Hargreaves Lansdown, the adviser, says that expats living on sterling pensions are stuck with them and should consider coming home while they still have the capital to do so.

 

He adds that people who are still working, but planning to retire to a eurozone property could move into a qualifying overseas pension scheme to create a euro income, or put investments based in euro economies into a self-invested personal pension (Sipp).

 

No one should assume, however, that the euro is safe. It has stabilised after recent falls against the pound and dollar, prompted by fears over the Greek economy, but there remains speculation that the reprieve is temporary. If the currency crashes, costs of living in its zone might become more affordable for those on sterling incomes. However, the more favourable exchange rate could rule out a later return to the UK.

 

Mr Hall says that one option might be to downsize overseas, freeing up money for a safety net. Apartments in cities such as Mlaga remain more affordable than outlying villas and are less vulnerable to future price falls because there is always demand from locals.

 

He adds that those who do decide to return to Britain should consider renting here for a few months before buying. He explains: I expect to see a wave of repossessions and further house price falls after the next government brings in austerity measures.

 

How property prices have fared on the Continent.

• Spain has been hit hard, with prices down most on the sprawling expat developments on the Costas. Des Rowson, of DLR Properties, an estate agent that specialises in Spain, says that it is selling one-bedroom properties for 50,000 that would have fetched 100,000 two to three years ago. He believes that prices will recover eventually, but that the next two years will be a difficult time. Prices have held up best at the top of the market in resorts such as Marbella and have gained in some niche areas such as the
  Basque Country (up 3 per cent in the past six months), which has sights and scenery, but no oversupply of villas.
• Prices in Portugal have stayed fairly flat, with only small falls reported. The launch of new Ryanair routes to Faro this month may boost the Algarve.
• France has fared better than Spain, with prices remaining flat or rising in the prime resorts of the Riviera. However, demand has tumbled for the isolated rural properties popular with some Britons. Keith Baker, of Croft Baker & Co, the solicitor that advises clients on European property transactions, says: Properties away from the southern coast have slipped by about 10 per cent , but most expat owners can afford to wait for recovery because France attracts wealthier buyers than does Spain, for example.
• Prices in Italy have been somewhat protected by its banks strict lending criteria. Moreover, the expat market is high end, with
  limited supply. Linda Travella, of Casa Travella, the estate agent, says: We havent seen the big falls felt in other countries, but prices have fallen back a little because sellers are having to compete with bargains elsewhere. There is little scope for big price rises, so no point in owners who bought several years ago (when prices were very low) waiting to sell. Prices in Tuscany have fallen by about 10 to 15 per cent in 18 months. The Lakes region has remained most resilient, with prices for villas untouched.
• Property prices in Greece have also suffered. Robert Key, of Cluttons Greece, says: Until recently, Greece had seen falls of about 5 to 10 per cent. In the countrys current crisis, that is now up to 20 per cent in some areas. As always properties at the top end have held up best, as have those in the bigger cities and on islands with airports. Key adds: Greece is only at the start of the recession that Britain went into two years ago, so prices will continue to drop for the next few years. The state accounts for something like 40 per cent of GDP, so cuts in public sector jobs will have a significant impact. Prices will continue to drop for the near future.

 

Analysis: Outlook for sterling not good

Despite all the talk of a weakening euro, it will cost you about 5,000 more to buy 150,000 (135,400) today than five weeks ago. This is because the pound is also in trouble.

 

Duncan Higgins, an analyst at Caxton FX, the foreign exchange broker, says: With the EU stalling on the situation in Greece, the market has taken a break from selling the euro and focus has turned to the pound. Few could argue that the fiscal situation in the UK is too dissimilar from that of the [heavily indebted]peripheral eurozone nations and sterling is suffering heavily as a consequence.

 

Having fallen below key support at $1.50, the pounds decline looks set to continue. The near-term outlook for sterling does not look good with the Bank of Englands Monetary Policy Committee still open to the idea of more quantitative easing.

 

The underlying economic worries hitting both currencies are unlikely to ease for months, maybe years. There is no prospect of things settling in the UK before the markets have reacted to the next governments austerity moves.

 

Meanwhile, serious work will be needed to even begin to turn around the problems not only in Greece, but also in Spain, Portugal, Italy and the Irish Republic. As long as the pound and the euro suffer in (relative) synchronicity, the position for those with exposure to both currencies remains stable. The risk is, however, that one will gain or lose
heavily against the other.
 
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