|Special Feature: Opportunities across the pond|
|News - Latest|
|Tuesday, 17 July 2012 13:39|
As the eurozone crisis continues and the US property market shows signs of recovery, many property investors are being drawn stateside, according to Clare Nessling, director at overseas mortgage specialist Conti
Property sales in the US increased by more than 10% in April from a year earlier and may end the year up by as much as 13%, according to the National Association of Realtors. Its research has also found that property prices rose in 50% of US cities in the first quarter of this year.
According to the latest house price index from CoreLogic, residential property prices across the US increased by 1.1% year on year in April 2012. And the S&P/Case-Shiller index of property values in 20 cities fell by 1.9% in April compared with the same month in 2011, but this is the smallest decline since November 2010, after dropping by 2.6% in the 12 months to March.
The general consensus is that the property market is showing signs of bottoming out as mortgage rates continue to get cheaper and improving employment prospects draw buyers back to the market.
Average rates on 30-year and 15-year fixed deals have been falling to record-low levels in recent weeks, which is making property more affordable. At the time of writing, rates on a 30-year fixed-rate mortgage are averaging 3.56%, according to Freddie Mac’s weekly survey of conforming rates. This is apparently the lowest since long-term mortgages began in the 1950s, and compares with an average rate of 4.51% this time last year.
The turnaround in property prices is spreading some cautious optimism, as it’s a required step towards enticing more buyers and sustaining demand for homes. And with sales improving, the inventory of homes for sale has been decreasing, which is also bringing some welcome stability into the market.
Prices are still, in general, more than 30% below their 2006 peak and this, together with record-low borrowing costs and a weaker dollar, are making the prospects of owning a home in the USA better than ever.
Interest hotting up
Conti continues to get a lot of interest from prospective investors who are thinking of buying a property across the pond. Top of the list for many is Florida, where property prices have fallen dramatically over the last few years, with many homes being sold for less than it cost to build them. And if the property is within easy travelling distance of the famous theme parks, year-round rental opportunities are good too.
The NAR’s figures show that international buyers accounted for $82.5bn (£52.9bn) of homes sold in the year to March - almost 9% of sales and an increase of 24% on the previous year. Florida was identified as the fastest growing destination, accounting for 26% of foreign sales.
But it’s not just us who have been experiencing increased interest in the States from clients - the most recent Rightmove Overseas search report sees the USA remain in third place after Spain and France. It’s also in third place in the HIFX Property Hotspots Report, and third place in the Overseas Property Guides quarterly index, again after Spain and France.
It’s clear that in the current economic environment many buyers are sticking to locations which they know and trust, especially those where returns from the rental market are promising. Easy access, low interest rates, and bargain property prices are also contributing to the attractiveness of these countries, as is the weak euro. There are signs, however, that the ongoing eurozone crisis is starting to have a negative effect and is pushing many prospective buyers further afield to markets such as the USA, which they feel is a safer bet at the moment.
Do your homework
As with anywhere else, though, it pays to be selective and to do your homework. There have been warnings to investors about the dangers of buying repossessed properties at bargain basement prices in locations such as Detroit, which often involve too much risk.
Mortgages are not available for such properties and I would definitely advise against a cash purchase in these cases. It’s advisable for investors to stick with the better known and trusted markets such as California, Colorado, Texas, Florida, and Manhattan New York, where you can also find bargains with a lot less risk involved. You’re more likely to qualify for a mortgage in these areas too
You may have read, however, that strict lending policies are still preventing many borrowers from taking advantage of these investment opportunities.
There’s no doubt that the mortgage market has changed significantly over recent years in the US and that financing the purchase of a property there is not as easy as it used to be. But it’s certainly not impossible, especially if someone has a healthy deposit to put down.
When it comes to mortgage availability, there are - in theory - no restrictions to foreign nationals owning property in the USA and mortgages are available for purchases up to 65% or 70% of the property’s value depending on the state in which the property is located.
Most are on a repayment basis, and interest rates and loan terms tend to vary depending on the property type and exact location.
The maximum term of any mortgage is 30 years, the minimum loan amount is $100,000, and total mortgage payments and other financial commitments must not exceed 38% of the buyer’s gross monthly income. Many of the mortgage deals on offer have no redemption penalties.
If the property is to be rented out, the rental income is most likely to be in dollars, so it may make most sense for a buyer to take out a dollar-denominated mortgage so that they’re not subject to any currency fluctuations.
Renting out a Florida property could also come with some tax-efficient benefits, as it’s possible to offset mortgage interest payments (as well as other expenses) against any rental income.
There’s no doubt that it’s a good time to buy property in the USA. The fact that we speak the same language also helps, as does the availability of regular flights, good weather and excellent facilities and welcoming people. What’s not to like?
As always, however, it’s imperative to take professional advice before committing to anything. Prospective buyers should always go through the same process that they would follow if they were buying a property in the UK, and this includes consulting a good independent lawyer and ensuring that an independent valuation of the property takes place, even if it’s a cash purchase. There’s nothing to be gained, and everything to lose, by cutting corners and taking unnecessary risks.
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