Sab
03-11-2007, 02:15 PM
http://business.timesonline.co.uk/tol/business/money/investment/article1496425.ece
How to weather the US property storm
The weak dollar has made buying an American home cheaper, but some experts still fear a property crash. By David Budworth
THE cost of buying a second home in America has plunged nearly 10% over the past year as sterling has surged against the dollar.
This should have provided a golden opportunity to snap up a holiday bolthole, but the unsettled US housing market is putting off many potential buyers.
Nationally, the average house price has fallen 3% over the past 12 months and in Florida, the most popular destination with British buyers, sales have tumbled by almost a third.
But given that some investors believe that the market has bottomed, is it time to buy?
We examine the evidence with the pros and cons of buying US property.
Is it a good time to get in?
It is certainly much cheaper than 12 months ago.
The price of a typical home in Florida was $239,300 in January, compared with $243,200 a year ago, a 2% fall.
The weak dollar makes the figures even more interesting. A property worth $243,200 would have cost £136,800 last January, while a home worth $239,300 cost £123,700 on Thursday — a saving of £13,100, nearly 10%.
Some estate agents say these numbers don’t even show the true story. As buyers have dried up, developers have been slashing prices on new complexes by up to 20%.
Why have house prices been falling?
The slowdown, which started last year, follows five years in which average house prices rose almost 60%, according to the Office of Federal Housing Enterprise Oversight.
In Florida, prices soared 104% as its family attractions, beaches and fantastic weather attracted buyers from America and overseas. Most commentators think that prices simply went up too fast.
Seventeen interest-rate rises did the rest. Since June 2004, America’s central bank has raised rates from 1.25% to 5.25%.
The interest rate on a typical 30-year fixed-rate mortgage is now more than 6.5%, against just over 4% when the round of rises began.
These rate rises are starting to bite. There has been a huge surge in defaults in the sub-prime market, where lenders offer mortgages to people with poor credit records, causing more than 25 lenders to go bust. The turmoil has even hit big British banking giants such as HSBC.
Is the worst over?
There are bargains to be had if you have the time, money and patience to buy for the long haul. But there is still widespread uncertainty about where the housing market is heading, so don’t expect to be able to make a quick buck.
Some analysts still fear the contagion in the sub-prime sector could spread and things could get worse before they get better.
David Dabby, a property analyst in Florida, said: “The market is trying to find a bottom, but it could take a while. I don’t see any significant appreciation in prices for at least a few years.”
What are the best mortgage deals?
There are a bewildering array of deals from British lenders, offshore companies and American banks in a range of currencies: dollars, sterling, Canadian dollars, euros, Swiss francs and yen.
Most firms are happy to lend on rental properties, holiday lets and second homes. However, terms vary from state to state.
Brokers usually recommend you arrange a mortgage in the currency you earn in, where possible. That avoids the problem of the currency in which you make mortgage repayments strengthening against the one in which you are paid, which would make the loan more expensive.
However, you also have to factor in differences in rates. The American mortgages available in sterling are more expensive than some of the more exotic currency deals.
UK Mortgages Abroad offers a sterling loan fixed at 5.99% for one year. Lloyds TSB Offshore’s multi-currency deal charges just 2.17% in yen. Multi-currency loans switch between a basket of currencies to take advantage of exchange-rate movements.
Kevin Fleury at Conti Financial Services, a broker that spe-cialises in overseas mortgages, said: “Multi-currency deals are riskier. Unless you are earning money overseas or can stomach exchange-rate fluctuations we wouldn’t normally recommend one of these deals.”
Now may not be the best time to take out a dollar mortgage. Jim McCormick, currency strategist at Lehman Brothers, said: “The factors that have propped up sterling over the past year, such as stronger than expected growth and rising UK interest rates, are starting to fade. We expect the exchange rate to fall to $1.82 by the end of the year.”
If he is right and you finance your home using a dollar mortgage, your repayments will rise in sterling terms, assuming interest rates stay the same.
What taxes will I face?
America is generally low-tax, but you may have to pay tax in Britain as well. Profits on selling a property that you have held for at least 12 months are usually subject to capital-gains tax at 15%.
You can deduct the American tax you have paid from your British tax bill, but if the overseas tax is lower than the UK tax, you have to make up the difference.
In America, nonresidents are generally taxed at a flat rate of 30% on rental income. You can deduct the costs of repairs, letting and the depreciation of the building.
Rental income may be subject to state and local taxes, but not in Florida. There is a chance you may encounter transfer, survey and stamp taxes.
What happens on death?
You may have to pay inheritance tax — called estate tax — on your property.
Other US assets such as shares and savings are usually exempt. The tax rate is 46% but the threshold above which you pay it is much higher than in Britain at $2m (£1m).
UK inheritance tax levied at 40% on assets above £285,000 applies to your worldwide assets as long as you stay “domiciled” in the UK.
What is a Qdot?
A property passed between a nonresident husband and wife is subject to US inheritance tax.
Setting up a Qdot trust defers payment until the second death
How to weather the US property storm
The weak dollar has made buying an American home cheaper, but some experts still fear a property crash. By David Budworth
THE cost of buying a second home in America has plunged nearly 10% over the past year as sterling has surged against the dollar.
This should have provided a golden opportunity to snap up a holiday bolthole, but the unsettled US housing market is putting off many potential buyers.
Nationally, the average house price has fallen 3% over the past 12 months and in Florida, the most popular destination with British buyers, sales have tumbled by almost a third.
But given that some investors believe that the market has bottomed, is it time to buy?
We examine the evidence with the pros and cons of buying US property.
Is it a good time to get in?
It is certainly much cheaper than 12 months ago.
The price of a typical home in Florida was $239,300 in January, compared with $243,200 a year ago, a 2% fall.
The weak dollar makes the figures even more interesting. A property worth $243,200 would have cost £136,800 last January, while a home worth $239,300 cost £123,700 on Thursday — a saving of £13,100, nearly 10%.
Some estate agents say these numbers don’t even show the true story. As buyers have dried up, developers have been slashing prices on new complexes by up to 20%.
Why have house prices been falling?
The slowdown, which started last year, follows five years in which average house prices rose almost 60%, according to the Office of Federal Housing Enterprise Oversight.
In Florida, prices soared 104% as its family attractions, beaches and fantastic weather attracted buyers from America and overseas. Most commentators think that prices simply went up too fast.
Seventeen interest-rate rises did the rest. Since June 2004, America’s central bank has raised rates from 1.25% to 5.25%.
The interest rate on a typical 30-year fixed-rate mortgage is now more than 6.5%, against just over 4% when the round of rises began.
These rate rises are starting to bite. There has been a huge surge in defaults in the sub-prime market, where lenders offer mortgages to people with poor credit records, causing more than 25 lenders to go bust. The turmoil has even hit big British banking giants such as HSBC.
Is the worst over?
There are bargains to be had if you have the time, money and patience to buy for the long haul. But there is still widespread uncertainty about where the housing market is heading, so don’t expect to be able to make a quick buck.
Some analysts still fear the contagion in the sub-prime sector could spread and things could get worse before they get better.
David Dabby, a property analyst in Florida, said: “The market is trying to find a bottom, but it could take a while. I don’t see any significant appreciation in prices for at least a few years.”
What are the best mortgage deals?
There are a bewildering array of deals from British lenders, offshore companies and American banks in a range of currencies: dollars, sterling, Canadian dollars, euros, Swiss francs and yen.
Most firms are happy to lend on rental properties, holiday lets and second homes. However, terms vary from state to state.
Brokers usually recommend you arrange a mortgage in the currency you earn in, where possible. That avoids the problem of the currency in which you make mortgage repayments strengthening against the one in which you are paid, which would make the loan more expensive.
However, you also have to factor in differences in rates. The American mortgages available in sterling are more expensive than some of the more exotic currency deals.
UK Mortgages Abroad offers a sterling loan fixed at 5.99% for one year. Lloyds TSB Offshore’s multi-currency deal charges just 2.17% in yen. Multi-currency loans switch between a basket of currencies to take advantage of exchange-rate movements.
Kevin Fleury at Conti Financial Services, a broker that spe-cialises in overseas mortgages, said: “Multi-currency deals are riskier. Unless you are earning money overseas or can stomach exchange-rate fluctuations we wouldn’t normally recommend one of these deals.”
Now may not be the best time to take out a dollar mortgage. Jim McCormick, currency strategist at Lehman Brothers, said: “The factors that have propped up sterling over the past year, such as stronger than expected growth and rising UK interest rates, are starting to fade. We expect the exchange rate to fall to $1.82 by the end of the year.”
If he is right and you finance your home using a dollar mortgage, your repayments will rise in sterling terms, assuming interest rates stay the same.
What taxes will I face?
America is generally low-tax, but you may have to pay tax in Britain as well. Profits on selling a property that you have held for at least 12 months are usually subject to capital-gains tax at 15%.
You can deduct the American tax you have paid from your British tax bill, but if the overseas tax is lower than the UK tax, you have to make up the difference.
In America, nonresidents are generally taxed at a flat rate of 30% on rental income. You can deduct the costs of repairs, letting and the depreciation of the building.
Rental income may be subject to state and local taxes, but not in Florida. There is a chance you may encounter transfer, survey and stamp taxes.
What happens on death?
You may have to pay inheritance tax — called estate tax — on your property.
Other US assets such as shares and savings are usually exempt. The tax rate is 46% but the threshold above which you pay it is much higher than in Britain at $2m (£1m).
UK inheritance tax levied at 40% on assets above £285,000 applies to your worldwide assets as long as you stay “domiciled” in the UK.
What is a Qdot?
A property passed between a nonresident husband and wife is subject to US inheritance tax.
Setting up a Qdot trust defers payment until the second death