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The great British return: UK citizens choose Eurozone property once again
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The great British return: UK citizens choose Eurozone property once again

Last year marked the return of British buyers to Eurozone property and positive market conditions are leaning in their favour when it comes to the weakened currency union. While local incomes are growing and the pound sterling is strong, European mortgage rates are at an all-time low, Eurozone property prices are falling and political instability further ashore is drawing buyers back to the EU.

British activity on the continental European real estate markets has grown over the last eighteen months and UK citizens are returning to their old haunts. The number of property sales to British in Spain and France grew 27% and 33% in 2014 respectively, and the trend persists this year. British made 35% more purchases in Spain during the first quarter of 2015 in comparison to the same period in 2014. A poll conducted by Gocompare.com at the end of last year shows that 20% of British planning to purchase property for the first time want to do so abroad.

Pound sterling strength

British buying power abroad is increasing. The pound sterling gained 10% against the euro in 2014 and real estate prices in the Eurozone are going down. Economic stagnation and the Greek debt crisis have been fuelling Eurozone weakness and punishing local buyers but it has indeed been a boon for Great Britain. Unsurprisingly Spain is once again leading the charge: sales of houses and apartments rose proportionately to the falling euro, from 1,542 in Q4 2013 to more than 2,000 in Q4 2014.

Number of British property purchases in Spain. Source: Registradores de España, ECB

The share of UK citizens among foreign buyers property for sale in Spain has also grown from 14% to 18% between Q1 2014 and Q1 2015 while the share of other major property buyers, particularly from France, Germany, Italy, Belgium and Russia, has fallen amid incertitude in the single currency zone.

Google searches have also been reflecting growing interest in continental real estate. During the first three months of 2015, Eurozone property searches originating in the UK grew by 37% compared to last year. In contrast, searches for US property, third favourite of the British, only gained 4% during that period.

Cheaper Mediterranean property

Real estate prices in many European countries, particularly along the Mediterranean (e.g., Greece, Spain, Italy and Cyprus) have come down and some property markets have shed 20% to 40% of their pre-crisis value. On the other end of the scale there is the UK where prices are on the rise. Last year they gained 10%, reason enough for British to be seeking better opportunities abroad.

European* property price changes, %. Source: Eurostat, IMF, BIS

It is particularly profitable to purchase real estate in Eurozone countries, a fact that British buyers understand very well. Renewed growth of prices in Spain, Cyprus and Portugal in 2014-2015 is a positive indicator of potential growth after successive price drops since the crisis. While the prices of property for sale in Italy and France are still declining, this trend has slowed down and growth is expected.

British income growth

Incomes grew by 4.5% and GDP by 3% in 2014, proof that the British economy is finally recovering from the 08’-’09 recession. Real disposable income also followed suit, growing by 2.3% in 2014. In fact, disposable income was 4.5% stronger in Q1 2015 than the same time last year, making it the fastest growth of this sort since 2001.

Historic interest rates

Interest rates in the Eurozone and the UK are at an all-time low as governments pursue their attempts to stimulate investment and consumption. After plummeting in 2009, the rates have stayed down, making mortgages more accessible. Consequently very low variable and fixed mortgage rates are another incentive for British buying abroad on credit.

European Interest Rates, % p.a.Source: ECB

Purchasing power parity

All the above has made the Eurozone attractive. Put simply, the pound sterling gives British value for money when it comes to real estate in the Eurozone compared to last year.

Let’s assume that, in 2014, a UK household with an annual income of £60,000 wanted to purchase a 100 sq m property in France for £500,000 (EUR conversion) with a ten-year loan for 50%. If they were to buy it this year, the price per square metre would be lower, the property cheaper and their income higher. In short, real estate in France has become 20% more affordable to British in comparison with early 2014.

2014 2015 Change, %
Price per square
metre, EUR
5,000 4,920 −1.6
Exchange rate,
EUR/GBP
0.828 0.743 −10.0
Property price, GBP 500,000 441,776 −12.0
Mortgage rate, % 3.0 2.3 −23.0
Payed interest, GBP 45,000 34,500 −23.0
Average annual
income, GBP
60,000 62,700 4.5
Affordability, %* 11.0 13.0 20.0
* Share of the property purchase expenses in the annual income of the buyer

Political instability abroad

Political factors have also contributed to the growing demand for European real estate. The spread of fundamentalism, terrorism and attacks specifically targeting tourists has hurt recent holiday destinations like Egypt, Turkey and Tunisia. The number of British visitors to Egypt has plummeted 56% compared to 2010, and 22.5% for Turkey.

Change in the number of British visitors to foreign holiday destinations in 2014 (compared to 2010), %. Source: International Passenger Survey by ONS

On the other hand, Britain’s classic favourites along the European Mediterranean have regained popularity. For example, UK tourism to Italy and Malta grew by 31% and 22% respectively in 2014, compared to 2010. So as the tide turns on extra-European tourist destinations, British visitors are also looking to put their money into property abroad in the Eurozone with which they have already had a long relationship.

What to expect

It seems likely that the most favourable exchange rate of the pound sterling to the euro may be behind us, but real estate in the Eurozone will remain a good buy for UK citizens for the foreseeable future. The most positive forecasts say property prices will stagnate in the Mediterranean Eurozone, that is, if they don’t fall more. At the same time, Euribor interest rates should continue to decline until at least 2017 while UK GDP is expected to grow at least until 2020 contributing to higher income for its residents. What will happen after that will largely depend on how and if the Eurozone can get the economy and currency back on track, not to mention the eventual conclusion of the Grexit saga. In the meantime, it’s a safe bet that British buying in the Eurozone will continue as long as their economic growth does.

Yulia Kozhevnikova, Tranio

Darya Berezina, Tranio

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