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Rocketing house prices in the UK make an overseas property a viable alternative

Sunday, June 8, 2014

In what appears to be a symptom of rocketing property prices in London, a garage in Kensington was recently put up for sale at £300,000. That’s more than the UK’s average house price, which I’m sure you’ll agree is absolutely remarkable.

Foxtons, the estate agent marketing the garage, speaks of its generous proportions – with room for two cars – and the fact that it’s “located in a highly sought-after area.” Plus, it has “easy access to Kensington High Street.” But it’s still only a garage.

In February, the average price of a house in the UK rose by 17.7% in the previous year, and across the UK as a whole, property prices were up 9.7%. Apart from London, the highest rises were seen in the South East (8%), the East (7.7%) and the East Midlands (7.6%).

A month ago, the UK Office for National Statistics said that London house prices had gone up at nearly twice the rate of salaries in the capital.

All of this may be a reason why more and more people are considering moving to a property overseas, and one such place is Italy. If you’ve ever fancied a new life in Italy, it’s not a bad time to do so.

The Italian property market has been given something of a boost by foreign investors, who spent €3.6 billion on Italian property through 2013. That includes €1.3 billion worth of transactions from US investors, and another €1.3 billion from Europeans. In the commercial market, the first quarter of this year saw almost 48% of the €700 million worth of purchases made by overseas investors, but the residential market has also seen plenty of foreign investors moving in, tempted by still low house prices.

While overseas capital is performing well in the Italian property market, tight lending regulations are preventing local investors from making the purchases they want. Italian banks instead appear keen on clearing out old debts, meanwhile foreign banks have begun to show a pronounced interest in the Italian market.

But with local investments expected to return in the next two years, when local banks are once again in a position to tender new loans, property prices are set to go up. However, this isn’t expected to happen just yet, therefore now could be the ideal time to take advantage.

In the short term, property prices in Italy are expected to remain low. According to Fitch Ratings, property prices are down 5.8% year on year since 2012 and could fall further before the year is out.

For those with a small budget, there’s a great selection of properties on offer for under €100,000 in the well-known inexpensive locations – the likes of Abruzzo and Calabria – but it’s also worth checking out the cheaper properties in famously costly areas like Lake Como and Tuscany. Generally speaking, you’ll find rural properties more affordable than those in the towns and cities, good news for those looking for a country getaway.

In the last couple of weeks, the pound versus euro (GBPEUR) exchange rate has been as high as 1.235, with £200,000 getting you around €309,000. At the start of the year, it was down below 1.20, with the same amount of money getting you €300,000 – that’s €9,000 less in the space of a few months. Beware short term dips, though. For a couple of weeks in March, we saw the rate dip to below 1.20 – after that, it returned to the highs the likes of which sterling is currently enjoying.

The current strength of the UK pound will mean British buyers' money goes further, but it could go further still if you make the right decisions when paying for your property, and making mortgage payments. As we’ve seen in the examples above, fluctuations in currency values could mean you pay thousands more – to avoid that happening, make sure you understand your options, and speak to a currency exchange specialist who can explain and help you through the process.

Written by Simon Hilton, senior foreign exchange consultant at World First.  For more information on currency transfers, please contact Rupert Hart on Rupert.Hart@worldfirst.com and mention Secondhome as the source of your enquiry.

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