From the Guardian June 2 2006
The perils of buying abroad
A Somerset couple's traumatic experience with their dream house on Crete is a warning to anyone buying property abroad, writes Jeremy Davies.
Over the last few years a new industry has sprung up around Britons' growing desire to buy property overseas. Estate agents, mortgage brokers and lawyers are clamouring to get in on the act, but there is still very little regulatory protection for buyers when things go wrong.
Jacqueline Ritson-Higham, a 42-year-old former nurse from Taunton, and her husband Les found this out the hard way when they tried to get a mortgage to pay for renovations on a house near Chania, in Crete. They did not realise until it was too late that the Financial Services Authority (FSA) only regulates mortgage brokers when they are selling loans for UK properties.
The Ritson-Highams sold their UK home in 2003 and bought their house in Crete with the intention of emigrating there. They had £22,000 left over from the sale to help fund renovations to make the house habitable, but when they tried to borrow more from a Greek bank it turned out that, as is common in Greece, there were problems with the property deeds.
By the time a new deed had been drawn up more than a year later, the building costs had soared. This and the mounting costs of storing their furniture - almost £500 per month - pushed them seriously over-budget.
They needed to borrow more money, and were offered a £35,000 loan at a rate of 5% by a Greek bank, but in March 2005, on the advice of their lawyer and builder, they searched for a UK mortgage broker to help them secure a loan more quickly and at a better rate.
The broker said the smallest mortgage they could take was £50,000. He advised them to borrow this amount and use the extra £15,000 to consolidate their existing debts. They agreed, and applied for the mortgage. But the information was wrong - the minimum amount was incorrect and Greek banks will not lend to foreign nationals for debt consolidation. The mortgage was also more expensive than the loan they had considered, with a rate of more than 6%.
The couple have refused to pay the broker's fees and argue that he mishandled the loan application. Their Greek house is still unfinished and they are relying on relatives for accommodation in the UK. Jacqueline Ritson-Higham says the FSA regulations should be extended to cover overseas mortgages, to protect buyers against rogue brokers.
"This firm advertises that it's FSA-regulated, but it's been incompetent and rude from the outset, and failed us in every way - to find out our only recourse is to the courts was unbelievable," she says. "We feel utterly frustrated and angry at what's happened, and are resolute in not paying them a penny more."
It was only when she took her complaint against the company to the Financial Ombudsman Service that she discovered that although the firm had advertised it was FSA-regulated, this did not apply to mortgages for homes overseas.
FSA spokesperson Robin Gordon-Walker says the regulations only offer protection to people taking out "first charge" mortgages secured on UK properties that are or will be the borrower's primary residence. There is no requirement for firms to advertise this fact.
"Loans secured on overseas properties, even if the mortgage comes through a UK lender or broker, would be totally outside our remit - and so, incidentally, would 'second charge' loans secured against one's UK property, which people might take out to fund overseas homes," he says.
The Ritson-Highams' MP, Liberal Democrat Jeremy Browne, says there is a clear need for tighter regulation. "Buying property within Europe and elsewhere is no longer a minority pursuit for British people," he says. "The legislation doesn't seem to have caught up. Rightly or wrongly, people don't differentiate in their minds between buying a property in Cornwall and buying one in Corfu, and they're investing a lot of money, faith and peace of mind in these purchases."
He has written to the FSA to highlight what he describes as a "glaring anomaly" in financial services regulation. He has yet to receive a reply, but the FSA is likely to point out that the extent of its remit is a matter for the government to decide. It is not just in respect of mortgages that consumer protection in the overseas property industry is lacking, says Paul Owen, chief executive of the Association of International Property Professionals (AIPP). The organisation was set up in March with the aim of tightening self-regulation of companies involving in buying and selling homes abroad.
"There's an awful lot of corruption out there - just look at what's been happening on the Costa del Sol recently. British buyers are frequently asked to fork out large amounts of cash under the table to dodge taxes and get round planning rules. Then there are advertising issues, like estate agents making wild claims about 'guaranteed 30% capital growth over two years', as well as brokers on the make," says Owen.
"We hope to build our membership up to around 700 firms of overseas property professionals over the next two years, at which point we'll have firm codes of practice in place that offer a 'kitemark' type security, and a clear route to redress, for consumers. Persuading firms operating in the overseas property market that it makes commercial sense to do things properly is the way to pull the rug from under the crooks' feet. Make no mistake, though, this is a tough nut to crack."
The expansion of the Property Lawyers Abroad Network (Plan) - an organisation that works with dual-qualified property lawyers in more than 25 countries popular with UK buyers - is, perhaps, a sign of growing demand for greater consumer protection. Plan offers its clients the security of UK-level conveyancing standards, including regular email updates on case progress, a UK-based escrow service and negligence cover through the Law Society. This is all for an administrative fee of 15% on top of the standard conveyancing fees.
Without such a service, buyers can find themselves at the mercy of lawyers who may offer a poor service or even misappropriate funds, and against whom there is little chance of redress, says Plan's managing director Michael Masterson. "Even in some of the more established property markets, the safeguards are minimal. As far as I'm aware, for example, there has never been a successful negligence claim brought against a Spanish lawyer," he says.
Meanwhile, the Ritson-Highams' battle for redress continues. The couple's broker is suing them for unpaid fees of £1,100 and they are counter-claiming for more than £16,500, including £13,500 for additional mortgage interest and £1,750 for extra storage costs due to what they see as unreasonable delays in pursuing the application. Their Greek property is still unfinished and their dreams of emigrating remain on hold.
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