THE property boom that has seen house prices in the UK double since 1998 is not unique. A decade of low interest rates has pushed up property values across the European Union.
Anyone who owns a holiday home in France or Spain will almost certainly have seen the value of their property shoot up dramatically in recent years, with double-digit rises in 2004 alone. You can add to this a further 37% over that period, as the euro has strengthened against the pound.
A recent report on European residential property from the Royal Institution of Chartered Surveyors (Rics) reveals that price rises in France had already reached double figures by 2003.
But in 2004 they raced ahead of the rest of Europe, with strong increases in the Paris area, as well as in the Mediterranean holiday regions.
‘The prices of existing housing rose by 16% over the year and new housing by an annual 10% in the first half of 2004,’ says the RICS report. ‘Prices have now been rising for eight years. Over that period, they have doubled nationally, with almost half of the increase occurring in the past three years.’
Spain, too, has continued to see big increases in property values, although many pundits had predicted a cooling off in 2004. Prices rose nationally by 17% during 2004 and, according to the RICS, ‘could be setting a world record’.
For property investors who want a holiday home where they can cover their costs by letting for part of the year, the big question is, will prices in France and Spain continue to rise? And, if not, where else can you buy that offers the possibility of capital growth?
‘France is a good barometer for the rest of Europe because of the wide diversity of properties and geographical areas,’ says Simon Conn, of international mortgage broker Conti Financial Services. ‘Demand for France is still strong. I thought it would be quieter in 2004, but it wasn’t.’
But are there bargains to be had elsewhere? Says Conn: ‘We are inundated with calls from UK buyers wanting property in Croatia and Bulgaria, but in both countries, particularly Croatia, there are problems with title [proving ownership of property or land].
‘Where we are actually doing the business is in Greece, particularly the islands, many of which have been demilitarised and foreigners can buy for the first time – and also in Cyprus, Crete, Corfu and Rhodes.’
This could be interesting for investors. Of all the EU countries, Greece was the only area where house prices fell last year – although by only 4% – having seen substantial increases in the run-up to the Athens Olympics.
Says Susan Clay, European business director for Barclays’ overseas mortgage operations: ‘We do a lot of overseas property exhibitions, and our experience is that Spain is still the number-one place for buying abroad. But France, Portugal and Italy are also still popular. Wherever the lowcost airlines go, the property buyers follow.’
Barclays has more than 700 branches that lend in euros to those who want to buy in these main holiday and retirement areas. She points out that £57bn of equity was taken out of UK property in 2003, much of which, she believes, found its way into homes abroad.
The interesting point here is that, like some other banks, Barclays will lend in euros, regardless of whether or not you have a euro income. Most lending is linked to Euribor, the European equivalent of bank base rate, which stands at about 2.33%, so borrowing in euros can prove relatively cheap.
Loans are between 0.75% and 1.7% above Euribor, giving a present pay rate of between 3.08% and 4.03%.
In Italy, Barclays will lend at fixed rates for 20 years at 5.6%, not as attractive as the variable rate, now at 3.4%. But remember, if you borrow in euros and the euro strengthens against the pound, your debt will increase in sterling terms.
But having seen property prices rise so spectacularly in Europe, could we soon be in for a fall? Not according to the RICS. ‘Overall, there does not seem to be a strong likelihood of a crash in any of Europe’s housing markets in 2005,’ says its report. ‘Greece may indicate that a soft landing is possible when interest rates and economic variables are relatively benign.’
Let’s hope the experts are right.