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Buy to Let Spain or UK?

By Roger Weavers September 2005

Buy to let in the UK is a great way to invest in property in UK and Spain but which is going to give you the best return on your investment (ROI)?

In the UK there are hundreds of different buy-to-let mortgages but probably the cheapest is an interest only mortgage which normally requires a 15% deposit. Interest would be around 5.5% but you may be able to shop around for better deals and get a reduced rate for the first one or two years.

In Spain the choice of mortgages is not so great but the interest rates are lower. Spanish mortgages for non residents a few years ago required at least a 40% deposit but now it is possible to get an 85% loan just like the UK. It is unlikely you will be able to find an interest only mortgage in Spain as Spanish mortgages are normally simple repayment over 10 - 30 years. With interest rates at around 3% your monthly repayment would be a little more than the equivalent UK interest only mortgage but you would be paying off some of the loan each year.

With UK buy to let properties you would normally rent out your property using a 6 month secured tenancy agreement so you would expect to have the property rented most of the year with perhaps small gaps between tenants.

With holiday lets the majority of your tenants would only be staying for a week or two. This can command a much larger weekly rent amounts. Longer term agreements, over 2 months, would command around half of the short term amounts. You can expect to have your Spanish property completely booked through the summer months but may only half book the rest of the year. This depends on the area and nearby amenities. Plenty of people love to play golf in the winter in Spain so a property on or near a golf course would have great winter rental potential.

 Taking all this into consideration lets look at 2 properties, one in the UK one in Spain.

UK property
Purchase price ?100,000
15% deposit ?15,000
85% Mortgage ?85,000
Interest Only mortgage monthly repayments at 5.5% ?389.58
Potential Monthly rental income ?500.00
Annual Profit ?1325.00
ROI 8.83%
 
Spanish property
Purchase price ?100,000
15% deposit ?15,000
85% Mortgage ?85,000
Repayment mortgage over 25 years at 3% repayment ?474.00
Potential Monthly rental income * ?625.00
Annual Profit ?1812.00
ROI 12.08%
* Monthly income calculated using 30 weeks booked at an average of ?250 per week.

The figures above are just used as an example. Interest rates and potential income can vary depending on type of property, location and many other factors.

Just one more figure for you to consider. The long term trend for UK house prices is an average of 8% increase per annum. The trend for Spain is still around 15% average increase per annum.


This article was written by Roger Weavers of Spanish Costa Properties. Roger has a number of investment properties in Spain and the UK and is a partner of Spanish Costa Properties.


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