THIS TRANSCRIPT IS ISSUED ON THE UNDERSTANDING THAT IT IS TAKEN FROM A LIVE PROGRAMME AS IT WAS BROADCAST. THE NATURE OF LIVE BROADCASTING MEANS THAT NEITHER THE BBC NOR THE PARTICIPANTS IN THE PROGRAMME CAN GUARANTEE THE ACCURACY OF THE INFORMATION PRINTED HERE. MONEY BOX SPECIAL – SPANISH PROPERTY BUYING Presenter: Chris A’Court TRANSMISSION 1st SEP 2003 1502 - 1530 RADIO 4 __________________________________________________________ ___________ ANNOUNCER: Now it's time for a special edition of Money Box. Buying a home in Spain is no longer just for the rich. With more and more people desiring to own a place in the sun Chris A'Court travels to the Costas to investigate the boom amongst the British to buy property there. He hears how for some the dream has not only turned sour but also into a financial disaster. (Spanish music) A’COURT: It's the sound of Spain but the place is Birmingham. Behind me a flamenco troup entertains thousands of people who've come to the National Exhibition Centre for the largest ever showcase of Spanish property for sale. Spain’s already the number one destination for Brits wishing to buy a home abroad but, as we'll hear in this programme, there's increasing evidence that it can prove a costly nightmare that some people live to regret. Visiting a show like this it all seems so easy to buy a home in Spain - leaf through the glossy sales brochures and choosing a house appears as simple as booking a package holiday. The chief reasons to buy a Spanish home are of course to provide access to that better climate and hope of a better lifestyle but investment considerations now figure strongly too. Rupert Bates is show organiser and from Homes Overseas magazine.... BATES: The interest has been phenomenal. I think with the UK we’ve had the sort of worries over stocks and shares and pensions etc so from a purely investment angle I think people are seeing the value of bricks and mortar. The advantage that Spain has on other countries is obviously the sun. So you’ve got the investment in fun as well as hopefully capital appreciation. A’COURT: How much of a risk do you think there is to buying in Spain these days? BATES: You do get people who go over there, they’ve been there on holiday, they see a potential bargain and they can get their fingers burnt. They need to go in certainly with their eyes open but if they follow normal procedures and take proper advice it can be as straightforward as buying in the UK. A’COURT: As straightforward as buying in the UK, or as safe as Solihull according to one sales advisor - with such phrases ringing in my ear's it's time to set out on a journey. With timeshare and holiday club scams having given Spain a bad name as a place to put money can the booming property sales business really change all that? What's it like to buy a Spanish home? (aircraft hostess….”Welcome aboard this flight to Alicante…”) (in airport arrival area) A’COURT: Here in Spain there’s no doubt that property sales are big business. Walking through the airport there are adverts everywhere and I haven’t even left the terminal building yet and I’ve already been approached by an eager young British woman touting for tourists to view some homes. Property sales are increasingly crucial to Spain’s economy too. Over a fifth of the country’s direct foreign investment now comes from sales of homes to people from outside Spain and there are already half a million British people who live here permanently. That’s a population close to that of Edinburgh or Bristol. Most of the ex- pats live along the Costas and I’m heading down to the place where property is cheapest to buy. That’s on the Southern Costa Blanca at Torrevieja. (Inside a car) LAMBERT: This is the heart of Torrevieja, not a tourist area. We’re now leaving the main town of Torrevieja and we’re going to go along a beach called Playa Los Locos, which literally means ‘The beach or idiots, the beach of fools’. A’COURT: Simon Lambert’s definitely no fool . He's Managing Director in Spain for Parador Properties, who’ve become one of the biggest sellers of Spanish villas to UK customers. I had come on an all-inclusive property buying inspection trip, costing less than £100 and which anyone who's serious about buying in Spain can book through a high street estate agent in the UK.... LAMBERT: We sell villas to the ordinary man in the street, we don’t try to sell to a luxury market. Our typical customer is someone who’s reached fifty, has worked hard all his life, his children are off his hands, probably paid off his mortgage in the UK and is either contemplating retirement out here or living part time out here and because the property market continues to grow a pace here prices continue to rise, people consider it a safe place to spend their money. A’COURT: I thought I’d hear assurances that buying Spanish property is safe but in Simon Lambert's office I also received an early warning on some of the hidden dangers of house hunting in Spain.. LAMBERT: There are unfortunately a great number of people who approach British buyers, maybe in bars or restaurants, even in the local airports. Somebody who doesn’t appear to have an office and is working with a mobile phone out of his car is unlikely to be there two years on when you come to move into the house and you need help with the moving in process. A’COURT: Is that really going on? LAMBERT: Yes I’m afraid it is. There are real dangers because you have no means of knowing who you’re dealing with and it’s quite possible they won’t recommend independent legal advice or frequently tell people that they don’t need legal advice. You know, would you buy a home in your own country without taking proper legal advice? A’COURT: It seems so obvious yet people really are ignoring the need for a legal advisor to warn them if they're being cheated or misled when they choose to buy a house in Spain - lawyers called in to pick up the pieces claim that when people go shopping for homes in Spain they often leave their common sense back in the UK. After all, absolutely anyone can set themselves up to sell homes in Spain - no licenses or special qualifications are required so it's a good idea to talk to a solicitor or specialist lawyer at home well before you set out to buy. And most experts warn that when you start looking at property prices you should add about ten per cent to allow for legal costs and taxes. (exterior sound) I’m standing on my hotel balcony on the coast at Torrevieja and looking inland from here along the skyline it’s just one mass of construction cranes. I’m about to go on the next stage of the inspection trip and have a look at the Spanish homes being built beneath those cranes. Hundreds, sometimes thousands, of homes grouped together and known in Spain as ‘urbanisations’. MAN: This you’re looking at now is a ground floor apartment….. A’COURT: This is what an inspection trip involves. For up to four days potential buyers are shown around property after property until deciding which one to buy. The sales agents get more commission if you buy a new property and a deal is signed not between you and the company showing you round but directly between you and a Spanish builder. The potential buyers on this particular trip were retired couple, Chris and Ilene from County Durham. As they looked round the unfinished shell of a property near a golf course I wondered if they had concerns about buying in Spain ILENE: We haven’t got any qualms about it, we don’t worry about it. We don’t think that the builder’s going to go bust – we’ve been well assured on that. A’COURT: We’ve largely looked around building sites. Is it a good way to choose property? CHRIS: I think it is the best way to choose property. It is a bit tedious, you do feel really tired but at least you are seeing first hand the property that you want to see or you want to buy. A’COURT: At the end of the week you’d expect to make a commitment would you? CHRIS: If we see something I really like I’ll buy it. We like Spain, we’ll be happy here. A’COURT: Inspection trips like this are becoming the most common method under which people buy, the whole process is packaged up and tightly controlled by the trip providers who, in order to earn their commissions must make sales and must introduce customers to the Spanish banks. On day four of their trip Chris and Ilene had committed themselves to buying a £130,000 villa. They didn't seem to mind that it meant paying a £2000 non-returnable deposit before getting back on the plane, that there's no cooling off period to reconsider, and that customers must pay half of the total property price within two months and yet still wait a year or more until the property is built and finished . Once someone pays half the price of the house, often through getting a larger mortgage on their home in the UK, they can then easily arrange to borrow even more money through getting a mortgage in Spain..as sales agent Paul Aspden explained , ASPDEN: When a client comes on an inspection trip we can take the client, whatever age, into the bank, with a passport, and the client can then and there receive a mortgage quotation. A’COURT: It’s done very quickly. ASPDEN: It’s done very quickly and it’s done very efficiently. A’COURT: It does mean though that people have to be very careful and not over stretch themselves.. ASPDEN: Yes but we can sit down, work out, exactly how much income they have from the UK. Whether it be from shares, whether it be from pension payments etc and we will advise the client the best amount or what the mortgage would be. A’COURT: If this all sounds very different to how you'd expect to do things in the UK - it is. Of course mortgages from Spanish banks are in Euros and taking out one of these might be dangerous if you're receiving an income in Sterling from the UK. You're exposing yourself to the dangers of currency fluctuation and possibly even negative equity. It’s possible to arrange mortgages in Sterling to buy property in Spain. Be warned that if you take any financial advice in Spain and it's wrong there's no point complaining to financial authorities in the UK because you're outside of their area of protection. Any complaint about financial advice given to you in Spain must be pursued through the authorities there. Winning compensation would depend on whether or not the person giving you advice is licensed and qualified to do so and whether the advice was written down - which it usually isn't. (inside car – Spanish radio playing) I’ve heard enough already to realise that there’s a lot more to this home buying process in Spain than many people realise so I’m heading down the close to the office of a home buying advisor who’s been here since 1986. Max Pemberton has some distinct views about what it’s like to come property shopping here. PEMBERTON: They don’t show the real pitfalls of life here. I think they paint too good a picture of what life is really like. A’COURT: Max told me how he's watched the results of the marketing frenzy aimed at getting UK people to buy homes in Spain. And why he thinks it's often the wrong move for people to make.. PEMBERTON: They’re coming down with a few thousand pounds in their pocket, they’ve got no capital to sustain them, they’re getting into mortgages because mortgages are fairly easy to get in Spain, and they’re getting themselves into financial problems straightaway. A’COURT: It’s very tempting at the moment to people in the UK to cash in a pension, to take some of their savings and think about moving to Spain. Is that a mistake? PEMBERTON: It is a big mistake. My own advice is first of all don’t sell your property in the UK. Keep your property, rent it out. Come down for six months to one year and see what it is like to live here in comparison to holidaying here. The fact of life is a lot of the houses down here are holiday houses, they’re not really living houses. There’s a big difference when you come to live in a house here. A’COURT: A lot of people think they can buy a property here and retire and benefit because the cost of living is lower. PEMBERTON: That once again is a bit of a fallacy now I think. I mean since the introduction of the Euro the cost of living has gone up dramatically in Spain. In my own estimate it’s between 25 and 30% and whilst items such as drink and cigarettes are cheap that’s as far as it goes. The cost of living here, if I compare it to the North of England, is very similar now. If you don’t drink and you don’t smoke then it certainly isn’t any cheaper down here. A’COURT: Max Pemberton's office is in Nerja. A town that had just four estate agents when he moved there 17 years ago - now there are a hundred and thirty estate agents vying for business. In the same area I was off to meet someone else who should know a thing or two about how best to buy a house. DANNY: It sometimes seems like every other shop in Nerja these days is an estate agent… A’COURT: Danny Bowers is a UK personal finance journalist who set up a highly successful website at the height of the internet boom and then sold it for a handsome profit. When he sought out a Spanish home he didn't want to buy new or in the sort of packaged way offered through inspection trips. Danny chose to go independent, arranging his own property viewings, investigating the buying process thoroughly and using a recommended Spanish legal advisor based in Spain. He bought a house in the hills, settled in and only then discovered how things can go wrong .. DANNY: You hear it very often, people say, “Oh it’s a minefield if you’e buying property abroad and in Spain specificially” – well I’m afraid it is. I was talking to a neighbour here, a Spanish chap, and he pointed out that he believed that there was some problem. We hadn’t actually bought what we thought we’d bought and a fair chunk of the bottom of the garden was sitting on land that didn’t belong to us at all, in fact it belonged to the town hall. To add salt to the wound half of our swimming pool was essentially not on our land at all. A’COURT: And what has it taken to sort it out? DANNY: To sort it out it has been expensive. The cost has very comfortably added ten per cent to the purchase price that I originally paid. I’m in the fortunate position that at that point I had the funds so I could put my hand in my pocket but I’m quite sure for somebody else in a different situation suddenly having a bill like that come out of the blue could result in them having to sell the property and that would very much be the end of their Spanish dream. A’COURT: Danny's bill to keep his swimming pool ran into tens of thousands of pounds, essentially because his recommended legal adviser in Spain failed to carry out a proper land search, He's thought about suing the adviser for negligence but has been warned it's virtually unheard of for anyone to be successful in such actions in Spain and that anyway the high cost of any such action would be prohibitive. Max Pemberton says Danny's experience is'nt isolated and anyone purchasing a Spanish home with land attached, like Danny did, must be prepared to pay more and stipulate a land search because although one would be included as a matter of course when buying a property in the UK, in Spain it isn't... PEMBERTON: Ninety nine per cent of the lawyers will not do that. The trouble is here, with the legal profession in Spain, is unless you tell them this is what you want, they don’t bother. We make certain, we even go to the town hall, which the average lawyer will not do, and find out if there’s any future charges that they may raise against the house because if, for example, it is in an urbanisation which has got some roads to be completed to bring it up to the standards that the town hall want they will raise a charge against the urbanisation so we try and find out if there’s anything like that against it as well – to ensure there are no debts in any form whatsovever against the property. A’COURT: Debts against Spanish properties deserve a warning of their own. If the person selling the house has missed any mortgage payments, council rates or even parking fines then those debts pass on to the new owner. In Spain debts don't move with the person they stay with the property so more crucial checks must be made before you buy. As if that's not enough there's another quirk in the Spanish house buying experience that can even make you a criminal... MAN: ….mind your step as you come up. And here we are, this is what you do it all for, there you go. A beautiful view over the village and then looking over the sea..make as a big change from Dulwich.. A’COURT: Mark, from London, welcomes me to his recently bought Spanish town house.…he too didn't wanted a previously owned property. Mark and his partner chose a house that hadn't been occupied for ten years and agreed to pay over £300,000 pounds for it. But then, at the very last minute, the seller demanded they pay £85,000 of that in CASH. Like many others who buy previously owned homes in Spain Mark was being drawn into making what's known as a 'black money' payment. The person selling the house demands cash in part payment to avoid declaring its true value to the Spanish authorities and to evade paying Capital Gains Tax. Mark felt uncomfortable about doing it but also felt he couldn't back out.. MARK: We’d already paid out about £2000 to £3000 in lawyers costs plus all the flights backwards and forwards and we were really left with not much choice, either we agree to pay that money or we lose the property. Not even a banker’s draft would do – it had to be notes and coins. In the UK I’ve bought three or four houses in my lifetime, you don’t actually ever see any money. Here it’s much, much more real. A’COURT: Mark told me how he had to pay for £85,000 pounds to be electronically transferred from the UK into his Spanish bank account. It was then converted into Euro notes which he had to carry across town and directly hand over to the person he was buying the house from.. MARK: The handover was actually quite a scary moment. You do hear stories of people in Barcelona or Madrid who’ve taken the money out of the bank and they’re walking out with a briefcase and somebody will snatch it away from them, and of course you’ve got no recourse. A’COURT: And then you handed over the money.. MARK: Yeah. At the end of the signing of the contracts where everybody comes to the table you have to hand over a package and watch them count all your money and stuff it in their pocket and walk off with it. It does feel very strange indeed! A’COURT: He didn't know it then but in buying his house like this Mark was committing a criminal act. Spanish Law says when those involved in buying and selling a house under declare its value by more than £65,000 they can be fined and sent to prison for up to four years. That’s rarely happened but people are cheating the Revenue and must live with what they've done and hope the tax authorities won’t catch up with them. People don't usually think much about tax when planning a move to Spain but it is a high tax society with a string of different taxes that might apply to you, for instance there are wealth and succession taxes that don't exist in the UK. But even besides tax there are yet more factors that can shatter peoples planning I was about to hear some particular experiences to shake the confidence of anyone thinking of buying in Spain.. MAN: I’m Graham, my wife’s name is Jan. We’ve been living in Spain for approximately six years in the property that we own, or that we thought we owned. We were very happy until suddenly this Spring a bombshell dropped upon us. A’COURT: Graham and Jan Fisher live in the hills above Alicante, near Benidorm and in the region called Valencia. As Jan explains the bombshell dropped when shadowy figures started making appearances nearby... JAN: We did see some people walking round part of the land near our house, measuring. Then we went along to the town hall, we saw that there was a plan already prepared to build thousands of houses on a mountainside where there are fewer than a hundred and we would have to pay thousands of Euros towards this project. A’COURT: Graham, how can things like this happen? GRAHAM: I think that’s one of the problems that people in Britain are going to find this almost impossible to understand. They say to you, ‘Well haven’t you got your documents in order, you must have done something wrong, you must have made a stupid mistake’. No – everything is perfectly in order it’s just that there is a law called the Ley Reguladora de la Actividad Urbanistica which is being used by unscrupulous developers to simply get their hands on huge tracts of land irrespective of the fact that there are people already living there or perfectly legitimate landowners, house owners etc. This is an abuse. A’COURT: To be clear then, it's the Fishers, as the existing home-owners who are being asked to pay thousands towards building roads, drainage and lighting for a huge new development of homes next door to their land. If they don't pay they must give up some of their land for a rock bottom price and if that doesn't raise enough to cover the bill then they face having to hand over all their land and even their home for auction. Those caught up in the abuse believe it's so unjust that they're lobbying the Spanish Government and the European Union to have the LRAU law urgently changed or revoked. Their campaign is being led by a retired Canadian diplomat who also lives in the Valencia region. Chuck Svoboda. He claims new cases of land abuse are emerging every week SVOBODA: It is a blood curdling example of what can go wrong. People come here, they buy with their life savings and they stand a very great risk of losing their investment. In sort this is a legalised land-grab. A’COURT: So why is such a law in place? Well when it was introduced ten years ago it was to stop land speculators holding on to valuable sites that could be used for schools and hospitals or where reasonably priced homes could be built for local people. But with sales of new Spanish homes to outsiders now so profitable unscrupulous developers are finding it irresistible to grab land where they know high value homes will sell. Local councils could stop it but usually don't, sparking allegations that corrupt council officials are sometimes working in league with the developers. Another couple facing disaster are Len and Tessa Deacon who've lived near Benissa on the Costa Blanca for the past nine years.. TESSA: They said that the cost of the infrastructure would be 112.4 Euros per square metre. Which means it’s just under £200,000 which includes the IVA. A’COURT: That’s the local tax.. TESSA: The VAT A’COURT: £200,000 for the cost of the infrastructure that they plan to install here which you don’t want TESSA: No we have everything we need. They say that if we don’t pay they will take our land. We felt that we just couldn’t sit here and wait for them to take our land so we took advice from a lawyer. He said well yes this is what the law says, if you’re in the developable area you have to pay. We are British pensioners we haven’t got that sort of money. Hopefully we will hang onto our house. A’COURT: The Deacons aren't giving up yet. But for another near neighbour, Danny Loveridge, it's already too late. He took me to the site where his 130 year old Spanish home had once stood...before he was forced out and developers tore it down. (in car) DANNY: We’ll just park here. That was my swimming pool. A’COURT: Your swimming pool was where the roundabout is in the centre of the road. DANNY: Where that roundabout is is where my swimming pool was. This was the site of my house. The whole building was ripped down in March while we were back in the UK. This foundation work is where the house was. A’COURT: Danny lost his home under the LRAU laws when a builder decided his house was on prime land for development. Danny had tried to fight to keep his property but eventually threw in the towel after an offer allowing him to get out with a fraction of what it was really worth. When everything was totalled up he had lost two thirds of the market value of his home...... DANNY: It would have been worth about £260,000 – we came out of it with about £90,000 and that makes us £160,000 down. A’COURT: Do you think you were singled out in some way? DANNY: No, oh no. There were fifty three people affected or fifty three owners of land. We were the only British ones – fifty two of them were Spanish. A lot of them were absentee owners, in so far as they didn’t live on their land, some of the land was just vineyards, but we weren’t the only ones affected. A’COURT: And now you’ve had enough? DANNY: Now we’ve had enough – totally. A’COURT: Danny's experience of the Valencian land laws is the worst to date but he fears it won't be long before others suffer a similar fate. He'd like to return to the UK, but the financial hit that he and his family have taken in Spain means they no longer have the means to buy the sort of property they once owned in England. So they feel stuck in the small Spanish holiday apartment that they moved into after losing their dream home. DANNY: I believe that every newspaper that carries advertising for the Costa Blanca, because that’s the main area affected, should across the top of its page put a banner equivalent to a government health warning of buying property subject to the LRAU laws. That alone may make people think, ‘oh I’d better be that little bit more careful’ than just jumping on a jolly three day visit to Spain and buying whatever they see first. The Valencian regional council has talked about changing the laws to protect people living and buying along the Costa Blanca, particularly around election times, but hasn't followed up with any action and a recent letter from the Spanish Embassy to a British Euro Mp makes it clear that the Spanish Government is unlikely to bring about any change. Most worryingly for home buyers it seems likely that what's already happening in Valencia will spread to Spain's other regions where building land is valuable - like the Costa Del Sol where there are the most property owners from the UK. Chuck Svoboda says unless land laws are torn up anyone thinking of buying any Spanish property with land attached or in the countryside should tread very carefully... SVOBODA: We’re not saying don’t come here. It’s a wonderful country there are many wonderful things to see and do here. If you’re interested in simply buying a small flat in town that’s probably not going to be a major concern but be exceptionally cautious. It is extremely important that people have thorough document searches carried out, that they know the history of the property they’re buying, they’re happy with the financial arrangements and the legal arrangements and everything else. There are a lot of bandits out there. A’COURT: Of course thousands of people who've successful gone through the home buying process in Spain and who aren't encountering subsequent problems will fairly say it does work and can be profitable too. People who've bought already have certainly enjoyed seeing the value of their properties increase on a par with the UK. Even with 400,000 new Spanish properties coming onto the market every year prices are still continuing upwards. But as demand and marketing to UK buyers increases there’s a significant risk that more and more people will learn the hard way about what can and does go wrong in buying a home in Spain. Along with the financially trapped Danny Loveridge, there's a strong chance that others too will end up attaching a whole new meaning to the phrase 'no going back' DANNY: For the two years that we were fighting we really didn’t know whether we would come out of it with anything. What we want to do is make sure nobody else has to face what we’ve done. ANNOUCER: That special edition of Money Box was presented by Chris A’Court. Studio production was by Penny Haslam. 1