Buyers are back looking for holiday homes.  Mortgage broker Conti Financial Services, which specialises in overseas mortgages, reports a big increase in mortgage applications and the busiest month for over a year. The foul winter in the UK has probably helped concentrate buyers’ minds on that place in the sun and mortgage applications rose by 48% in March compared with the previous monthly average.

European banks have not suffered as much from the sub-prime crisis as UK mortgage lenders and Conti says that overseas mortgage providers have money to lend to foreign investors.  ‘Falling property prices across many European destinations – in some instances by as much as 50% – mean that the chance of owning a place in the sun may never be better, and historically low interest rates mean it’s become even more affordable for British buyers,’ says Clare Nessling, Conti’s operations director.

‘The most popular destinations amongst our clients are still France and Spain, both of which come with easy access and good rental opportunities. Turkey is also popular, as it offers some great property prices and all the benefits of its Mediterranean location, minus the effects of the strong Euro,’ she says.

Nessling reports bargain hunters out in force in Spain where oversupply of properties and fears about planning permission have left the banks holding repossessed properties which are being sold off. ‘Confidence is definitely growing, but there’s also an element of buyers snapping up bargains in traditional hotspots while they have the chance.’

If you want your holiday home to pay for itself with holiday lets, you will generally have to organise a euro or foreign currency mortgage.  Most European tax systems will only allow rental income to be offset on a mortgage secured on the rental property.

According to Nessling, British investors buying second homes in Europe are taking out euro-denominated mortgages.  But be aware that if the pound, which has recently strengthened against the euro, falls out of bed – which it could well do if we have a hung Parliament after the May election – your euro debt will be increasing and monthly repayments will go up too – unless you are able to let the property in euros to cover the outgoings.   However, most UK owners tend to rent to other Brits who are largely not prepared to pay more on rentals denominated in the stronger euro.

So where will you find a bargain?  ‘Those European countries yet to record their first quarter of growth since the credit crunch include Spain, Denmark and Ireland where an oversupply of stock is holding back prices,’ says Liam Bailey, head of residential research at international estate agents, Knight Frank.  If you want a bargain, Knight Frank’s figures show that average property prices are down 8% in France and Spain over the past year while Greece is off 5.2% and Italy down 3.5%.

If Italy is too expensive, try Croatia where average prices are lower than Italy, just as scenically beautiful and prices are down 7.3% year on year.  Prices in Portugal have been static but for the biggest bargains of all, with year round sun, Dubai is the place to look where property prices have collapsed by 47%.

There are still some owners who are still in limbo due to the special situation of their property. There are still several hundred dwellings which remain outside the urban plan. These are properties that were built on land designated for other uses such as public coastal land, green zones, etc.  These properties still need to go through the courts before there is a   final decision. Included are 297 homes in Banana Beach, 50 properties in Golf Rio Real, 30 properties in Torrevigía and several more. Their future will be decided by the courts and in the worst case scenario will be demolished. It was hoped that these were to be added to the Marbella’s Urban Plan but has not been the case.

For the properties still outside the urban plan there is still hope though as the courts will consider the interests of all involved, which will include those who occupy the properties.

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