Spain – So just how much are we talking about?
Posted by The Expatriator
A great article from Mark Wilkens of the Rights Group regarding the actual costs of buying property in Spain 2007.
Please note that the information provided in this article is of a general interest nature and intended as a basic outline only. Nothing contained in this article should be seen or taken as the writer or publisher providing legal or financial advice. PS. I am a lawyer – not an accountant or IFA. I have prepared the following figures to the best of mine and my calculator’s combined abilities - e&oe!
Nic Cicutti’s excellent article - “The great PS3 rip-off: are Brits being fleeced?” - on MSN Money (22.03.07), started me to conduct my own research. I wanted to see whether life – aside from all the usually substantial health and well-being benefits ascribed to a life in Spain - could be significantly cheaper here in Spain than the UK – and for whom.
Let’s start with some basic UK property costs. These are, of necessity, based on a sample of available historic data. They are the mean of all properties countrywide and form some base points.
It’s appreciated that across the UK that there will be substantial variance in values. A beachfront apartment in Brighton is likely to be worth substantially more than a flat with a front line view of the North Circular. A Manchester lock side warehouse may well have a completely different appeal – and commensurate value - to a two up two down in a Durham mining village.
08.02.07 the BBC reported that the average cost of a detached property in UK was £285,697 (€421,831.00) and an apartment was £174,052 (€256,987).
In the UK the costs of buying are an average of circa 4%. So, respectively, £11,427 (€16,798) and £6,960 (€10,231) needs to be added to the relevant purchase price.
In Spain, figures are difficult to come by and there are vast – perhaps even greater regional differences than in the UK - but in 2006 Spanish-Property- Service.com reported that the average price of the new house on the Spanish Costas reached €2.400 per constructed square metre (m2). If we take 175 m2 as an average size of a detached property then that would equate to €420,000 (£284,456). For apartments – according the Spanish Ministry of Housing – they had a coastal location average in 2006 of circa €2000 per m2 – suppose an average size of 125m2 that would make €250,000 (£169,319).
In Spain, the average costs of buying, with a mortgage equal, are circa 10% of the purchase price. So €42,000 and €25,000, respectively, needs to be added to the relevant purchase price.
It is argued that the following categories are the most likely who may be interested to re-locate – either physically or financially:
1. The retired couple. Often called “empty nesters”. They jointly own a property worth £400,000 and need to dispose of it in order to move abroad.
Many people who plan to purchase a retirement property abroad may be able to do so without needing a mortgage. According to new data published by Retire to the Sun (23.03.07) online mortgage company - mform.co.uk - showed that 13 per cent of UK citizens planning to buy a new property in the near future expect to be able to do so without borrowing money. The majority are older people looking to downsize and take advantage of recent house price increases.
Buying in locations, such as Spain, where it is typically cheaper than in the UK, meaning that people who retire abroad could free up more cash from the move and enjoy a better standard of living.
Being aware that one in three purchases in the UK falls over before completion we feel that opportunities exist for the keen seller who wants to become a cash buyer – quickly - to avail them selves of certain guaranteed property purchase schemes. One such scheme that enables sellers to - “get on with it” - is PSS, run in Nottingham by UK property veteran Ben Whitaker.
PSS commissions a formal valuation of the UK property and promptly indicates a figure that they would pay for the property. Arguably far less hassle than working with an estate agents and having potential buyers roaming around your home. We believe this is likely to be very attractive to those sellers who enjoy substantial and long-standing equity in their property.
Becoming a cash buyer enables the UK seller – now a Spanish purchaser - to negotiate hard in their preferred location. This may mean securing a desired property at a lower price. Through further careful management, including using various currency management options, it is believed that the UK seller may recover some of the costs of sale in the UK.
Our empty nesters will be able to use their say £375,000 (€551,250) – “investing” 50% - €275,625 - into their new Spanish apartment and banking the remaining sum after taking tax, professional and furnishing costs into an account in either the UK or Spain to supplement their combined annual pensions.
Their costs of living in Spain will be, according to figures analysed by Othercountries.com, around 20-30% less than the cost of living in the UK. However they caution – “do bear in mind that heating and air conditioning may mean you pay rather a lot more in electricity in Spain” – it’s hot after all! However, during the hottest months – June July and August - it wouldn’t be unusual for local residents to leave to visit friends and family in cooler parts of the World.
During these months a good apartment in an attractive location with swimming pool access would command a rental in the region of £250.00 per week. Even at 50% capacity that’s £1,500 (which may be subject to income tax) to contribute towards your travelling budget.
For the Silver Sellers or Empty Nester – the above model seems very attractive – and frankly you be the Coolest Grandparents on the block for your teenage Grandchildren. Want to spend a couple of weeks with your Grandma in Spain? “Yes please!”
2. The four person family unit – where the breadwinner(s) have sufficient job mobility to live in Spain whilst continuing to work in their chosen field in the UK or elsewhere. To re-locate they need to sell their UK property worth £400,000 with an outstanding mortgage of £250,000. Annual servicing costs at 6% - £15,000 (£1250 pcm). £130,000 (€191,100) will be introduced into the new purchase after they settle car and credit card debts totally £20,000.
Decisions as to potential location will be governed by access to good schooling, convenience to local amenities such as airports and motorways and value for money. Mr and Mrs. have a history of renovating older and tired property and making money for their family as they sell on.
They find a forty year old, three bed roomed small villa property on a good 1200m2 plot in a good area of the Costa del Sol – let’s say Elviria just to the East of Marbella. The asking price is €550,000 and they successfully negotiate a reduction to €500,000. With all taxes and legal costs – out of their savings - they will pay a total of €550,000.
They will require a mortgage of €310,000 but as they’ll need funds to renovate of circa €40,000 they decide to raise their borrowing to €350,000 - a loan of 70% loan to value and perfectly within the tolerances for mortgage lenders in Spain. A 4.75% interest rate mortgage is available and annual servicing costs will be €16,625 (€1385 pcm)(£11,309 pa/£942.00 pcm). This is a saving of around 25% on their previous UK mortgage expenses.
Their school fees will be around 30% cheaper than the equivalent schooling in the UK.
Their commuting costs for essential meetings in UK – even by Easyjet - may be as much as 50% of the equivalent UK travel costs. A randomly plucked example Manchester to London return train trip £ 219.00 (06.06.07 to 08.06.07) whereas Easyjet – same dates and approximate times - Malaga to Gatwick return is £145.00.
3. BARBies - the new demographic for those who Buy Abroad and Rent in Britain. It is reported by Newskys’ that as many as 40% of young people are now considering buying overseas as the first step on to the UK property ladder.
Such purchasers will be looking for capital growth and yield which will be needed to service the finance and running costs of the property. Capital growth will follow the usual economic factors – under or inadequate supply of the “right” property. Capital growth in the Spanish market is, in my opinion, a medium to longer-term investment. Despite reports from certain Spanish banks that prices will rise by an average of 8% year on year 2006 to 2007 other elements come into play.
Breadth of choice – many of the off plan purchases of the last three to four years are coming to completion. It’s a buyers market with sellers having to accept substantial negotiations on price in order to make a sale. The old adage of a property “being worth what a buyer is prepared to pay for it” is particularly apt at present.