Over the past 18 months, more and more first-time buyers struggling to get started in the UK property market have been looking abroad in the hope of bagging a bargain.

With the current average cost of a British home standing at 196,745, according to figures from the Halifax, would-be buyers are eyeing parts of the Continent in the hope of making enough money that they can ultimately afford a place here.

“Many more first-time buyers are coming to us [as they try to] reap significant returns on small deposits in a short period by buying elsewhere in Europe,” says Justin Figgins of property agent RightmoveOverseas.

Thanks to the rise in budget airlines and cheaper property prices, the Continent is also luring people seeking second homes. Figures from the Office for National Statistics show that the number of UK households owning a further property abroad has almost doubled in the past seven years to more than 256,000 today.

More than half of these are in Spain and France but the European hotspots may be changing. “Spain has suffered a bad press lately, with talk of falling property prices and a number of scandals hanging over it,” says Miranda John, manager of broker Savills Private Finance International. In Marbella, 4,500 houses could be bulldozed because they were built illegally on public land.

“The type of buyers who were searching for cheap properties in Spain five years ago are now looking further afield anyway, as it is too expensive. But then again, if you buy prudently, now is a good time to negotiate an attractive deal in Spain,” adds Ms John.

The “in” destination today is Bulgaria, where foreign individuals and companies spent a total of €310m (210m) buying property in the first three months of this year, according to data from the Bulgarian National Bank. That compares to €190m in the same period last year. There are some “great new developments” in Bulgaria, claims Ms John.

The Royal Institution of Chartered Surveyors looked at the rate of house price growth in 26 European countries over 2006. The greatest hike, at a massive 58 per cent, was in Krakow, Poland, where the national rise was 33 per cent. Next up were DenmarkBulgaria, with growth of 22 and 20 per cent respectively. Half of the 26 countries in the survey showed double-digit growth. and

In Britain and Spain, the average figure was between 9 and 10 per cent, while growth in Italy peaked at just 4 per cent.

While Croatia was a poor performer, it is tipped as a hotspot this year by Savills. It is still an emerging market and one that offers value for money at around 44,000 for a two-bed apartment. But buyers must do their homework and go through reputable agents, as obtaining clean titles on property there can still be tricky.

So how can you predict a hotspot? Budget airlines are a good indicator as they often fuel demand for property when they open new routes. For example, after Monarch’s introduction of low-cost flights from the UK to Cyprus earlier this year, bricks-and-mortar prices are expected to soar.

Once you have found a property, you need to decide how you’re going to fund it. “If you have enough equity in your home in the UK, you could remortgage to a new lender with a better rate to finance the purchase,” says David Holling- worth at broker London & Country. “Or you could secure the loan against the overseas property.”

It makes sense to use a euro mortgage if you are buying on the Continent, adds Melanie Bien, director of Savills. “The proliferation of low-cost euro loans means you’ll pay less interest than you would if you borrowed in sterling.” The European Central Bank rate is hovering around 4 per cent, compared with the Bank of England base rate of 5.5 per cent.

Mortgage rules differ from country to country. But overseas lenders tend to be very strict on proof of income, so earnings, pensions, investments and rental income may all be taken into account. Most lenders require a minimum deposit of 15 to 20 per cent, says Ms Bien.

Other purchasing costs are higher than in the UK. A further 10 to 12 per cent should be added to the price to cover local taxes, fees and legal costs. Also, while viewing properties overseas may pose practical problems, it is vital you see what you’re buying before making an offer.

Be aware that the rules on property ownership, conveyancing and tax vary widely, even within the EU. The key is to get good advice from the start and use recognised estate agents and qualified legal advisers.

Further reading: Pick up a copy of ‘Buying Property Abroad’ by Jeremy Davier

House Prices: Growth slows

House price rises seem finally to be slowing, according to the latest survey from the Halifax.

In May, prices edged up just 0.3 per cent, the lender said, leaving annual house price inflation at 10.6 per cent - slightly down on last month’s 10.9 per cent.

It was the second successive month in which there had been a slowdown in price rises. The figure in March was 11.1 per cent.

Martin Ellis, chief economist at the Halifax, said the four base rate rises since August 2006 were now having a big impact on the market.

The average UK house price is now 196,893, said the lender.

A separate report last week suggested that, by 2026, UK prices could have climbed to the equivalent of 10 times the average UK salary. Today, the ratio is seven times salary. According to the National Housing and Planning Advice Unit (NHPAU), a new government think-tank, more houses need to be built.

“Demand is growing and unless action is taken, pressure on the market will only get worse,” said Professor Stephen Nickell, chairman of the NHPAU.

The Government has recently moved to make it easier for developers to push through planning permission for large housing developments.

Yvette Cooper, minister for housing and planning, said local councils should back proposals for more building. House prices have more than doubled since 1997 and the supply shortfall has played a part.

Retirement Funds: Britons will have to work past 65

Lack of cash will force hundreds of thousands of people aged over 55 to carry on working beyond 65, it emerged last week.

Low savings and high debts were cited in the survey by mortgage lender Birmingham Midshires as two pressing reasons for working well past the state pension age for men.

Many of today’s pensioners enjoy generous final salary schemes that pay out a proportion of their wage. But most people retiring in the future will be drawing on less generous money purchase schemes. This, coupled to the lack of a savings culture, is likely to lead to more people spending some of their later years in employment in order to secure a comfortable retirement.

However, nearly half of the 2,214 over-55s interviewed for the research said they would be happy to work beyond 65 for “companionship” and ‘intellectual stimulation”.

“For many, work is an important social lifeline, so we are seeing a significant number of older people planning to work beyond pension age,” says Jason Robinson, director of savings operations at Birmingham Midshires.

While working so late may be unwelcome for those over 55 today, it will soon become a normal expectation for many people who are in their twenties and thirties now. Large mortgage debts and the lack of long-term savings, along with the Government’s decision to increase the state pension age to 68 by 2044, will result in a delayed retirement for millions.

Borrowing: Lull in rate rises

Millions of homeowners with variable-rate home loans breathed a sigh of relief last week when the Bank of England held the base rate at 5.5 per cent.

The decision by the Monetary Policy Committee had largely been anticipated by the City in the expectation that the Bank was still monitoring the impact of its four quarter-point rate rises from 4.5 per cent in late summer last year.

However, many analysts predict another rate rise later this year - and perhaps next month - to try to choke off the inflationary pressures caused by, among other elements, property prices and companies raising prices.

180,000 British homeowners

Tens of thousands of people nearing the end of fixed-rate mortgages are being warned that they could face a hefty hike in monthly repayments.

Borrowers who took out a cheap two-year fix in the second quarter of 2005 could see their monthly bills rise by up to a third if they move on to their lender’s standard variable rate (SVR).

Findings from broker Mortgage Advice Bureau (MAB) reveal that nearly 180,000 people who took out home loans in 2005 will face repayment increases of 185 a month as they come to the end of their fixed deals.

On a 100,000, 25-year capital-and-interest repayment loan, the interest rate will increase from a typical fix of 4.39 per cent to the current average SVR of 7.4 per cent, according to figures from financial analyst Moneyfacts.

“The effect of four successive base rate rises will become really apparent to those whose fixed-rate loans end over the next few weeks,” says MAB spokesman Brian Murphy.

“Their repayments will no longer follow the low fixed rates set in 2005, but instead revert to their lender’s escalating SVR.”

Melanie Bien from broker Savills Private Finance suggests that since the Bank of England is expected to raise rates again this year, it may be better for borrowers on a tight budget to take out another fix, even though many of these are currently priced higher than base rate trackers.

The best two-year fixes on the market are available at around 5.3 per cent.

Ms Bien recommends opting for a remortgage package, where valuation and legal fees are covered by the lender to keep costs down.

Source: cossacks.org.uk