The American Dream

Up until quite recently, for most British people, having more than one foreign holiday a year was considered a luxury and actually owning a property abroad was just a dream. However, this is no longer the case. Demand in the UK for overseas property has risen and an increasing number of financial options exist to make that dream a reality.

Traditionally mainland Europe, especially Spain has been the location of choice for Brits buying abroad. However, times have changed and investors are now looking further afield. The USA accounts for 8 per cent of the market for Britons buying abroad, and Florida – the ‘ Sunshine State’ – tops the popularity stakes with over 14,000 current owners. Orlando in particular has proven a popular choice for buyers due to its close proximity to Disneyworld, which attracts in the region of 40 million visitors per year.

The Florida boom

After a period of unprecedented house price increases in the UK, more and more British homeowners have found themselves in the enviable position whereby they are able to release the equity from their UK property in order to buy a second property abroad. According to July 2005 figures from the UK Office of National Statistics, nearly 250,000 Britons have now invested in second homes overseas and the overall number of people buying property abroad grew by 20 per cent last year, the biggest surge in purchases in a decade.

According to Butterfield Private Bank, Florida is now the most popular location in the US for second home purchases for UK residents. This popularity comes as no surprise as Florida has a lot to offer British buyers. There is no language barrier, air travel has become more affordable, and there is the added bonus of near-guaranteed year-round sunshine. In addition, there are some significant financial incentives as buyers can generally get more ‘bang for their buck’ (or pound). For example, a typical three-bedroom, two-bathroom home with swimming pool in Florida could cost $300,000. In comparison to this, recent figures from the UK Land Registry released late last year show that the average property in London has now risen above the £300,000 ($520,000) barrier.

Dollar or sterling?

There are big differences between buying a property in the UK and in the US. The most common option available for UK residents wanting to buy in America was to borrow in dollars. Potential buyers were likely to be offered US long-term fixed rate mortgages for up to 30 years, something largely unfamiliar to borrowers in the UK.

As the market has developed, more financial options have been introduced for UK buyers of property in Florida. For example, marketed exclusively through specialist mortgage brokers on both sides of the Atlantic, and supported by a number of US-based real-estate professionals, a range of standard UK mortgages now offer a loan-to-value of up to 80 per cent. These mortgages are provided in the UK and are quoted and repaid in sterling. There are currently two basic options: a flexible tracker that tracks the Bank of England Base Rate, or a one, three or five-year fixed rate that reverts to the flexible tracker after the fixed term. Capital and interest-only repayment is available with terms from five to 25 years.

Buying a property in Florida is an achievable dream for many UK clients. However, it is vital that they work with one of the many experts in Florida to ensure they understand all aspects of the unfamiliar purchasing process. For example, while there may be renting and letting opportunities, buyers need to be aware of the local restrictions and laws on property rental. However, prospective buyers must be careful as they cannot rely on rental income to purchase a property and renting a property for holidays is not allowed in all areas. Before they commit, a purchaser will need to establish what is and isn’t permitted. If they are able to rent, the owner will need to identify and employ a reputable local property management company to ensure that all their statutory obligations are effectively met.

Getting the facts rights

The process of buying and managing a second home in the USA is very different to the UK, or elsewhere in Europe, and support for purchasers and their brokers now extends to the non-financial aspects. By working closely with specialist real estate professionals in Florida, UK lenders in this sector can ensure that borrowers are aware of the different legal requirements and terminology. For example, the technical language is unfamiliar – realtor, appraisal, constructor’s lien, escrow account – as is documentation, such as RESPA and Truth in Lending, and even some of the legal concepts. Experienced help is essential, and a range of professional and statutory fees will need to be budgeted for.

With the help of expert advice, for thousands of Britons the American dream has become the American reality. Some 60 per cent of UK visitors to Orlando, Florida’s main tourist hub, are repeat visitors, and as the UK specialist overseas holiday property magazine Homes Overseas wrote: ‘For those with a passion for the place, buying a Florida holiday home can often make good financial sense – as long as the rules of the game are strictly observed.’ These rules now include serious consideration of a sterling mortgage.

Without the right advice, buying in the US can be a red-tape minefield. Property laws vary depending on which state or county you are in. In addition, historically, the only option available to UK residents wanting to buy in America was to borrow in dollars, generally with a US long-term fixed rate mortgage for up to 30 years, something largely unfamiliar to UK borrowers. The need for buyers to get the financial aspects of their transaction right is all the more pressing because buying a second property in Florida is not a ‘get-rich-quick’ scheme, but represents a long-term acquisition and a major lifestyle enhancement. The market has recognised the change in needs and, in recent years, products like British Mortgages Abroad (BMA) have been launched.

BMA is a sterling mortgage product offered to UK homeowners on US property.

When BMA was launched by First National, (now GE Money Home Lending), it provided, for the first time, a dedicated funding option, that was much easier for UK buyers to understand – this is still the case five years on. It operates exclusively through intermediaries and offers Florida homebuyers a simple financial solution. BMA provides mortgages to UK mainland resident homeowners who want to buy a Florida holiday home, or who already have one and wish to refinance, probably from their existing US-denominated dollar mortgage. BMA operates through a network of real estate professionals.

There are currently two basic options: a flexible tracker linked to Bank of England Base Rate, and guaranteed to never be more than 2.54 per cent above it for purchases or refinance or one, three or five-year fixed rates starting from 5.09 per cent and reverting to a flexible tracker rate after the fixed period. Capital and interest or interest-only repayment is available, with terms of between 5 and 25 years, and LTV up to 80 per cent. Projected rental income of up to 25 weeks in one year is taken into account in assessing affordability.

A Saga Magazine survey recently found that 83 per cent of UK residents aspire to buy an overseas home. With the market set for continued growth and the currency rate in our favour, there is no better time to invest in a property in Florida.