The Latest Spanish Property News from Kyero.com

For nearly two decades, Spain has actually had a strict law governing building near the coast, the Ley de Costas. Under this, Spain's beaches are public land, and building residential properties within 100m of the high tide mark is prohibited. (Some commercial use is permitted, and some homes do have special planning permission from the coastal authorities.) However, the law was not always strictly observed in the years after it was passed. Now Spain's Environment Ministry has decided to get tough and, according to Spanish newspaper El Pais, it's going to apply the law retrospectively.

Properties affected by the law can be found all across Spain. There are illegally-built hotels, such as one at Calpe in Alicante. Of more interest to British property buyers and home owners are the illegally-built residential properties, which may have to be demolished when the law is enforced, and for which no compensation will be given. These aren't one or two homes here and there; 500 homes by the beach at Adra in Almeria and several apartment buildings near Los Cristianos on Tenerife are all also illegal. In all, around 3,500 developments have been identified by the Coastal Office as breaching the Ley de Costas.

Some commentators are hoping that the estimated five billion Euro cost of demolishing the properties may put the Environment Ministry off carrying out the demolitions. These are worrying times for anyone who already owns a property that breaches the Ley de Costas. However, if you're currently looking for a property near the beach in Spain, protecting yourself should be simple. You should employ an independent lawyer, not one recommended by the vendor of the property or the estate agent selling it, and you should expressly instruct him to check whether the coastal property you're looking at breaches the 1988 Ley de Costas. Once he's verified that the property was not bult illegally close to the coast, you can proceed with the purchase.

Full story from homesworldwide.co.uk

In this week's news, there's a good pair of articles about Spanish developer Llanera running out of money and the more general credit crunch in Spain at the moment.

My mailbox was inundated this week with many more news stories of doom and gloom - mostly about the overheated property market and it's knock-on effects for the Spanish economy. We've chosen the two articles above from many possibilities because they offer a balanced opinion - something lacking in many 'news' stories.

Without wanting to trivialise the situation, I just can't see the worst fears of the doom-mongerers being realised for one simple reason - like it or not, Spain's economy is tightly meshed with the fabric of every other country where the Euro is in circulation. Even though the UK enjoys some currency independence, it still relies massively on it's European trade partners.

Each one of Europe's major players enjoys the same insulation against going bust - the rest of Europe couldn't afford for that to happen.

So, take what you read about Spain's economy with a pinch of salt - this isn't a Spanish problem, it's a worldwide one and certainly affects the UK, Ireland and France at least as much as Spain.

This Thursday it's a public holiday in Spain - All Saints Day (Todos los Santos). Falling on a Thursday, that means that many people will make a puente (bridge) and take off Friday and Monday as holiday too. If you're having trouble contacting anyone in Spain between this Thursday and Tuesday next week - now you know why.

The Ministry of Housing issued their 3rd Quarter 2007 price statistics last week and we tried to reconcile their findings with our own statistics. Read more about how futile that was!

Let me finish this week on a high note: August 24th 2008 will see Valencia hosting it's first-ever street circuit Formula 1 Grand Prix. I'm hoping to attend - perhaps I'll see you there too?

Martin Dell, Kyero.com

For several decades Andalucia has been Spain's golfing heartland, but in recent years Spanish developers have cottoned on to the fact that it's not just golfers who love properties on golf courses. Many home buyers are attracted by the prospect of open, green views that will never be built on, and as demand for course-side properties has grown, so too have the number of purpose-built golf resorts with housing planned as part of the development.

In the heart of Andalucia's golf valley, things are still being done in the traditional way, with developers building individual, small-scale apartment builders and complexes beside existing courses. Reputable firms like Taylor Woodrow and Alanda (part of Ireland's McInerney Holdings plc) are among those building high-quality homes alongside equally high-quality golf courses. However, away from the golfing heartland plans for massive Murcia-style golf resorts, where the developer builds both the course and thousands of homes alongside it, are causing massive controversy. Such developments are already the subject of fierce debate in Murcia and Alicante, and a survey by a professor from Elche earlier this year concluded that most people in Alicante believed that golf was used as an excuse for property development.

Part of the trouble, no matter where you are in Spain, is water. Parts of the country suffer regularly from drought; Andalucia's current drought has lasted for four years. The World Wide Fund for Nature claims that a golf course consumes as much water each year as a town with 12,000 inhabitants. Every new course built puts pressure on the existing water supply.

Then there's the issue of land: in some areas, locals simply do not want a golf course, and developers are accused of encroaching on protected land. In recent weeks English-language newspaper the Olive Press has reported on the large-scale destruction of ancient oak trees within the UNESCO biosphere reserve in Ronda, all to make way for a golf course with no guaranteed water. (See the article here.) We also reported recently on another extremely controversial development in Madrid, again on ecologically sensitive ground with no guarantee of water.

Now the Junta de Andalucia is stepping in and is drawing up new regulations to ban the building of housing developments linked to new golf courses, apart from some exceptional cases alongside courses denoted of exceptional tourist interest. Any new course will have to be open to the public. Because golf is an important draw for tourists, hotels and other facilities will be permitted. According to Spanish newspaper El Pais, the draft of the regulations states that a nine-hole golf course must cover a minimum of 30 hectares and any hotel on it must have a minimum of 50 rooms but cover no more than 2% of the land. An 18-hole course will have to cover at least 50 hectares and have a minimum of 100 rooms, again covering no more than 2% of the land. Whereas in the past protected nonurbanisable land has been reclassified as urbanisable so that golf courses could be built, this will no longer be permitted, and local councils will have to define land for building golf courses within their town plans, so that only in the specified areas will the building of golf courses be allowed.

What does this mean for anyone hoping to buy a golf course property in Andalucia? Well, for starters, there's plenty already out there. You can find resale properties throughout the region, with apartments close to courses costing from under 200,000 Euros. With fewer new golf properties coming onto the market, those that do exist will retain their desirability better.

Full story from homesworldwide.co.uk

Budget airlines are making trans-continental commutes popular. With so many people currently living hours from London, and commuting to the capital daily for work, the era of budget airlines is making trans-continental commutes increasingly popular.

The expanding coverage of the European rain network, competitive airlines flying from airports throughout the UK, and more flexible working hours than make means that it is now more convenient to live in Spain and commute than it is to spend half the working day crawling along congested British motorways to central London, or spending hundreds of pounds on rail travel.

A recent report states that the average daily commute for a British worker is one hour and thirty minutes, with many suffering even longer journey times. With this in mind, a growing number of savvy workers are relocating to Spain while retaining their current, UK-based jobs and enjoying the best of both worlds.

Spain’s combination of good weather, laidback lifestyle, lower living costs, excellent air transport links and close proximity to the UK make it the obvious choice for those commuters looking for something different without spreading their wings too far.

While it may not be realistic to travel so far every day, many people are opting to arrange to go into the office for three days a week, and working from home for the remaining two days, while other people arrange to work a ten day on/ten day off shift pattern, staying with friends while in the UK.

So, it can be done, especially if your new home is close to an airport serviced by regular, low cost flights, flexible working hours, and a laptop with round-the-clock internet access. Monday blues could soon become a thing of the past.

Full story from homesworldwide.co.uk

A high-profile developer has run out of cash – but what does that mean for Britons who have invested?

When Llanera, an up-and-coming Spanish property developer, struck a four-year, £6.6m sponsorship deal with the football club Charlton Athletic in December 2005, it seemed an ideal way to pitch its properties to British buyers. Fernando Gallego, the firm’s president, talked of the “many similarities between our two businesses”.

Gallego was right, though perhaps not in the way he intended. After a disappointing season, Charlton were relegated to the Championship, last May. Llanera, meanwhile, has proved even more of a loser. The firm recently announced that it has run out of money and is seeking protection from its creditors – much to the alarm of those Charlton supporters tempted by its projects.

Llanera has – or perhaps I should say had – grand plans. The company’s aim was to develop affordable holiday homes for British buyers in the Murcia and Valencia regions of southeast Spain. Its flagship project was Nature Caravaca de la Cruz, a golf development near the inland town of Caravaca de la Cruz, in Murcia, where it planned to build 3,000 homes in a joint venture with other investors. Llanera also borrowed heavily to buy rural land, hoping to get it reclassified for residential development.

The company’s problems emerged when planning permission for the scheme took longer than expected, and the Spanish property boom started to turn sour. What really did it, though, was this summer’s credit crunch, brought on by the American sub-prime mortgage crisis. Rather like Northern Rock – which sponsors Newcastle United, a team doing somewhat better than Charlton – Llanera saw its access to short-term loans dry up, and it ran out of cash.

The latest figures show that by the end of last year, Llanera had debts of £522m – £104m of them with the American investment bank Lehman Brothers – yet it had notched up only £4.2m in sales last year.

At least Llanera was not selling properties without planning permission at Nature Caravaca – unlike some unscrupulous developers. Instead, it took only reservation deposits of £2,100 from British buyers interested in purchasing once licences had been obtained. Nature Caravaca Golf, a joint venture between Llanera and a number of other investors, says that it intends to proceed without Llanera, and has pledged to refund reservations in full if requested.

Llanera’s woes highlight a broader problem that is likely to become more acute as the Spanish property boom of the first half of this decade runs out of steam. But are the factors that brought it down unique, or could they afflict other developers?

It’s an important question for anybody thinking of buying in Spain, especially on an off-plan development that has yet to be built.

Nobody wants to hand over their savings to a developer that goes bankrupt.

“Llanera is a special case, because of its borrowing,” says Javier Illera, a director of Grupo i, a Spanish real-estate research and consultancy firm. “Other developers may see their profits squeezed, but there will be no crisis.”

Grupo i’s latest report puts annual demand for new holiday homes in Spain at about 90,000, yet 140,000 are built each year, which means the stock of unsold properties must be growing. Furthermore, 80% of developers recently surveyed by Grupo i reported that sales were worse or much worse, while 77% had a negative or very negative outlook.

Average sale times are on the rise, and government figures show that average price increases during 12 months to the end of June fell to 2.1% in Alicante (Costa Blanca), 3.9% in Malaga province (Costa del Sol), 6% in the Canaries, 7.1% in Girona (Costa Brava), 7.8% in the Balearics, 8.7% in Tarragona (Costa Dorada) and 9.5% in Murcia – a far cry from the double-digit rises of just a few years ago.

Even these figures may be an overestimate, according to agents in popular areas such as the Costa del Sol and Murcia, who say that prices have been stagnant or falling for some time. “It is not a crisis, it is a market reaching maturity,” Illera says – but you don’t need an MBA to work out that some developers must be under increasing strain as sales fall and borrowing costs rise.

So, what do you do if your developer goes bust before completion? It depends if they have guaranteed all your payments with a bank or insurance company. This is a legal requirement in Spain, but, since it costs money, not every developer does it.

“If you have a guarantee, you should claim your payments from the guarantor through your lawyers,” says Brian Marson, the head of Legal Answers, a firm of solicitors in Marbella. “It is important not to leave this too late, as there is normally a deadline for making claims. If some or all of your payments are not guaranteed, then you have to stand in line with the other creditors.” Needless to say, you should never buy from a developer that does not provide guarantees from an authorised financial institution.

The problem is that many developers take months to arrange guarantees. “There is a real problem with developers dragging their heels over guarantees,” Marson explains. “It’s not like in the UK, where all payments are covered automatically by the National House-Building Council system.”

Does this mean that buying off-plan is now off limits? Far from it. The slowdown will force serious developers to up their game. In the short term, I also expect a flight to quality: the best developments will grab increasing market share, creating unexpected opportunities for investors.

The risks are growing, though, so, before buying, find out how long the developer will take to provide a guarantee, and be wary of those who say it will be longer than a couple of weeks. Ideally, your payments should be guaranteed the moment you make them, but I have yet to meet a developer who can do this.

Full story from timesonline.co.uk

How is your retirement dream working out? Are your savings and income adequate?

According to the British Foreign office, thousands of British citizens who retired abroad end up living in poverty and poor health because they made inadequate provisions for their new life.

Data from the Office of National Statistics shows that one million Britons choose to move overseas on retirement, with Spain being a popular choice. In the last 10 years over 75,000 British pensioners moved here. While Spain may be cheaper than the UK in many ways, it is still one of the “more expensive” countries to retire to.

The dream of a new life in the sun can be very alluring. Tales of people who’ve already made the move and TV programmes making it look easy encourage others to follow suit. Unfortunately, as a report by Overseas Property Professional (OPP) explained, “bad financial planning means that many of these retirees find themselves in dire straits. With people now living a lot longer, especially in healthier climes, impoverished retirees are finding it hard to maintain their dream lifestyle.”

A spokesman for the Foreign Office said “It is astonishing how many fit and healthy retirees make no plans or provisions of any kind for their future health and wellbeing when they retire abroad… We are not trying to warn people off retiring overseas – we just want to advise people to make sensible precautions in order to enjoy their retirement abroad.”

To give an example about the situation in Spain, Bruce McIntyre, British Consul in Malaga, has commented: “Sadly now we spend much of our time dealing with elderly British nationals who moved out here ten or fifteen years ago and now cannot manage alone. Sometimes a partner has died and the other is too old or infirm to go out and buy food; sometimes people have made bad property investments or have not budgeted their pensions sufficiently and are living in extreme poverty.”

The OPP report included comments from Spanish property lawyer Mark Wilkins who pointed out that many people buying property in Spain do not fully consider how they will fund their retirement. Even those people who now consider themselves wealthy because their UK property has increased in value considerably don’t do their sums correctly:

“With a growing number of property millionaires in the UK, who may be able to realize the full value of the property when they retire, how much would someone need to fund their retirement - £1 million, £2 million, more? Based on the equation that you need to multiply your required income by 25, £1 million would give you £40,000. Amazingly, many experts suggest that a retired couple will need at least £2 million (€2.9 million) in the bank to give themselves a pre-tax income of £80,000 - and that’s without the costs of acquiring the retirement apartment or villa in the sun.”

The cost of living in Spain may still compare favourably with the UK, but it is rising and therefore eating into one’s retirement pot. As one estate company, Sol Andalusi, admitted, “for early retirees in Spain, inflation is definitely taking its toll”.

So, what can you do if you have moved to Spain lock, stock and barrel, bought property here, intend to live here until you shuffle off this mortal coil, but are now struggling to afford day to day living? It is possible that you are what is termed “asset rich but cash poor”. This means your property is worth a nice sum of money (especially if you have benefited from property value rises over recent years) but you don’t have enough disposable income.

Perhaps your pension no longer provides you with a comfortable retirement, and/or your savings have dwindled faster than you expected and are no longer sufficient to supplement your pension income and provide for the extra costs that come up from time to time. Or perhaps you still have enough money in the bank for the time being, but are worried that with prices rising the way they are, it won’t be enough to see you through to the end of retirement, especially if you are faced with unexpected medical or home repair bills.

One solution that is putting the mind of many retirees at rest is the Seniors Money Lifetime Loan which is now available in Spain. Unlike other so called “equity release” schemes in Spain, which carry many risks and impose many conditions, a Lifetime Loan allows you to do whatever you wish with the money, makes no investment conditions, has no repayment or loan requirements and is designed to last for as long as you do.

With a lifetime loan you basically unlock some of your wealth tied up in your house. After all, you own a valuable asset, but you cannot use this wealth to improve your lifestyle or pay expenses with. The price of your property will also have risen with inflation (or more than inflation!) so for a change you’ll be able to benefit from inflation and use your house price growth for practical, day to day living.

To be eligible for a lifetime loan you need to own property in Spain (with no or little mortgage) and be over 60 years of age.

This is a lifetime loan so you don’t need to pay it back in your or your spouse’s lifetime, nor do you need to make any interest payments in your lifetime. Or owe more than your house is worth, even if property prices fall in future.

Full story from tenerifenews.com

Lending in Spain’s financial and corporate sectors is grinding to a virtual standstill amid a climate of suspicion about which bank could be the “Spanish Northern Rock”.

“Everything has basically stopped because banks are too fearful to lend to each other,” one banker said. “Everyone wants to know who has been affected by the recent turbulence. There is a climate of total mistrust.”

An official from one of Spain’s largest construction companies said: “Everyone is waiting for banks to publish their third-quarter results before lending to anyone. They want to see who is in trouble.”

The Spanish banking system is considered to be extremely solid by the International Monetary Fund and analysts say that banks did not lend heavily in the sub-prime market. However, some analysts fear that Spanish banks could be affected if the lack of liquidity persists or if there is a serious correction in the property market. House prices have risen by 175 per cent since 1997.

Because house prices have risen so far, Spain is one of the countries at the highest risk of catching America’s property woes, according to a report by Euler Hermes, a leading international insurer of credit risk. “The UK, Ireland and Spain appear clearly at risk,” it said.

While Britain has hardly added any new homes to its stock in recent years, Spain has gone on a construction binge, building about 800,000 new homes a year, about 300,000 more than needed. Estate agents are dealing with a supply glut in many places and finding it hard to get overpriced new properties off their hands. Recently Llanera, a high-profile Valencia property developer, became the first big victim of a stalling property market and tighter credit conditions when it was unable to refinance its growing debt. The developer has defaulted on obligations believed to total more than €750 million (£523 million).

Some banks are also suffering from tighter credit markets, unable to offload their own mortgage debt. Last month, Banco Popular scrapped plans to issue €2 billion in mortgage-backed securities, saying that market conditions were too tough.

Speculation about which banks may be overexposed to Spain’s property market is rife, but no one is ready to name names. Moody’s Investors Service, the international credit ratings agency, said in a report this week that five, unspecified Spanish savings banks were particularly vulnerable to a sharp drop in the value of the country’s property market. Spanish bankers were furious at the report, securing a clarification by Moody’s the next day that played down the risk.

Any savings banks that got into trouble would almost certainly be bailed out because of their importance to Spain’s regional governments, but, fearing the worst, they have been increasing their provisions for a rise in mortgage defaults, as interest rates rise and Spain’s economy slows.

Story from business.timesonline.co.uk

In case your first language isn't English, Kyero.com is now also available in Deutsch, Dansk, Nederlands in addition to Español (Français is in progress at the moment too).

If you're fluent in any of these languages and notice any howling errors we've made - do please let me know. We know we have problems capitalising some German words sometimes and we think we've fixed a pluralisation problem in Dutch - but I'm sure there are more.

At the moment we're encouraging estate agents to translate their property descriptions too. They have access to a 'click and translate' tool to make this a little easier for them. It might be useful for you too if you see a property not described in English to understand a bit more about it.

Following our server crash last week, we've replaced the offending bits (for the geeky - a new RAID card and eight new hard drives) and we've ordered four new servers to prevent a similar failure from being a show-stopper.

Full disclosure: I am a bit geeky myself. I'm really excited that these new servers will make Kyero.com ten-times faster and resilient to failures

With luck and a following wind, these will all be up and running before the end of the year and you should find Kyero.com even faster and even more reliable.

In the news this week, there's an excellent article by Bill Blevins on how to get started with financial planning - especially if you own property in Spain, or are thinking about doing so.

There's also news of a property part-exchange initiative which I think is going to catch on. The great thing about a quieter property market in Spain is that it makes everyone involved in the industry look just a little bit harder for a competitive edge. Generally, all that effort translates directly into a better deal for you.

I think you'll see more creative ways of packaging Spanish property to facilitate sales - to everyone's benefit.

Have you ever been to Asturias in northern Spain? If not, you really should. It's a beautiful area, very green and with attractive property prices.

Martin Dell, Kyero.com

There are two key aspects to financial planning: Setting up your capital to achieve your objectives for income and growth and tax mitigation.

The first step in any financial planning exercise - whether you are looking for the most effective way to invest some new capital or reviewing your existing savings and investments - is to establish what your objectives are. These are likely to include one or more of the following:

• To provide a regular income
• To ensure you have enough money available should you need it (eg, for medical costs, a new car, a dream holiday etc)
• To protect the value of your money (i.e. to earn enough capital growth to keep pace with inflation and maintain your spending power through the rest of your life)
• Long-term capital growth
• Financial security
• To leave your children as much inheritance as possible

The next step is to select the most effective mix of savings and investments to reach your goal, and this selection should also take your personal circumstances into account - your age, time horizon, how much other money you have available (eg, pension income, capital invested/saved elsewhere, inheritances to come, etc) and your attitude to risk. The portfolio you end up with should be designed specifically to suit you; it will aim to meet your long-term objectives in a manner that it appropriate to your current situation.

The key to successful financial planning is to achieve your goals within your risk profile and with as little risk as feasible – many investors take on more risk than is necessary to meet their objectives, but with strategic financial planning you can avoid this.

On the other hand you also need to accept that you cannot avoid risk altogether. There is even risk attached to leaving money in the bank, because the lack of capital growth means that the value of your money decreases every year as a result of inflation. Most people would reject an investment which would (in terms of spending power) continuously lose them money, yet the same happens to money left in the bank if the interest is withdrawn.

Therefore, even if your only goal is to use your savings to earn an income, you still need to allow your money to earn some growth so that it keeps pace with inflation. Otherwise, when you come to use this capital, you will find it is not worth as much as it once was and may not be sufficient to meet your needs. The more time passes, the more value it will have lost.

A strategic investment portfolio will help you achieve your goals and beat inflation, at the same time as controlling risk. This is achieved through asset allocation - your portfolio will include a bespoke mix of equity funds, bond funds, property funds etc. Each of these will have further levels of diversification across countries, sectors, styles, managers and perhaps currencies. The addition of a guaranteed investment account will help you lower risk further still. And of course you would also keep some money in cash.

Tax mitigation is another aspect of financial planning, but it is also inextricably linked to achieving your investment goals. Good tax planning will give a sizable boost to your income and growth aspirations, to your success at beating inflation and to your long-term financial security.

Likewise, the investments and savings structures you choose will affect your tax planning. This could be in a detrimental way - for example, retaining investments which were tax free in the UK but liable to tax now that you live elsewhere, or leaving your money in the bank where the interest is highly taxed; or in a beneficial way – for example by selecting investments which are tax efficient in Spain.

Should your financial planning start with tax planning or investment planning? Ideally you want to avoid selecting savings and investments which will result in you paying more tax than necessary.

It is possible to combine both in one exercise. An offshore insurance bond is one such structure – sometimes referred simply as an ‘offshore bond’, or ‘personal portfolio bond’, or ‘private client portfolio’ or ‘tax wrapper’. The last is perhaps the most descriptive since basically what these bonds do is protect your choice of investment assets from unnecessary tax.

You would therefore select your mix of equities, bonds, property, cash etc according to your objectives and circumstances. This will probably mean selling your UK based investments to release the capital so that it can be invested more effectively for the country you live in now. Your choice of investments is then placed inside the offshore bond and will benefit from significant tax advantages in Spain.

These offshore bonds fall outside the EU Savings Tax Directive, helping you maintain financial confidentiality. You may also consider placing your offshore bond within an offshore trust for increased benefits.

Article by Blevins Franks

Part-exchange deals to help Britons who want to move to Spain will be launched this week by McInerney Homes.

Believed to be one of the first schemes of its kind, the proposal will allow homeowners to trade their properties in Britain for villas near Marbella. About 160 British homeowners relocated to Spain each day. McInerney's proposals are aimed at providing speed and certainty for those wanting to emigrate.

Desmond O'Connor, managing director of McInerney Spain, said: 'In essence, McInerney undertakes to buy the seller's current property, leaving them free to sign for their new home.

'While the seller takes ownership of their new home in Spain, McInerney takes ownership of their old home. We have allocated a number of properties available in Spain specifically for this scheme.'

Part-exchange deals, which have been common for decades in the motor trade, have started to take off in Britain in recent months as the property market has slowed.

But a quick sale is likely to mean a lower price, even if the seller can avoid paying an agent's commission by dealing direct with the buyer.

Story from thisismoney.co.uk

If you are looking for a different kind of Spain, away from the sunblasted Costas, then Asturias, tucked behind the Bay of Biscay on the northern coast, might fit the bill. The area is already a second-home favourite with the Spanish.

The coastline is awash with blue-flag beaches and fishing villages, the landscape inland covered with forests and orchards – source of the famous local cider. The mountain range of Picos de Europa is also a stunning natural park.

"This is an unspoilt part of Green Spain," says Clive Robbins, managing director of Blakemore Walker chartered surveyors, who sell homes across the region.

"Since the arrival of low-cost flights the market has seen a steady uplift in property values. The high-speed train link from Madrid to Oviedo, the capital of Asturias, is also nearly complete, and the motorway system is good."

Asturias has not experienced the dramatic price rises of the Costas, although as always there is a premium on the coast.

In the pretty fishing village of Cudillero prices start from £150,000 for a two-bedroom apartment but you can still get a pretty five-bedroom cottage just outside the village for £250,000.

The main town of Gijón offers the widest range of property with two-bedroom apartments from £100,000. A four-bedroom duplex flat will sell for £500,000. For those with deep pockets, the town of Lastres offers a stunning townhouse with views to the sea for £650,000.

Go half an hour inland, however, and it is a different story. "Homes can be up to 50 per cent cheaper," says Robbins, "and in the hills the views can be stunning."

Rafael Izquierdo of Zelanda Properties agrees. "An attractive detached villa might go for £175,000," he says, "and plenty of properties are much less."

Properties that attract foreign purchasers tend to fall in the £80,000-£150,000 bracket – but often require £70,000 of work. There are also renovated homes on the market: for a restored farmhouse on the coast with land and outbuildings, expect to pay around £300,000-£500,000.

The market in Asturias has showed some signs of slowing but the economy looks healthy, with a lot of European funds invested in infrastructure. Buyers can still find good value. They will also find the elusive, authentic Spain.

Story from telegraph.co.uk

Rural land was reclassified for development, causing taxes to rise sharply, but is being reclassified as rural.

IBI is, roughly speaking, the Spanish equivalent of the British council tax, and many expats find that IBI is far lower than the council tax they're used to paying. Now residents in the Gata de Gorgos area in Alicante province (about five miles inland from Jávea) won't have to pay their bills for 2007 until their land is reclassified.

In Spain land currently has three statuses: rural, urbanisable (suitable for development) and urban. Urbanisable land is worth far more than rural land and as the rate of IBI you'll have to pay is affected by the price of your property, when the local council in the Gata area reclassified rural land as urbanisable residents found their IBI rose steeply.

The reclassification was controversial, in part because it made possible the building of 6,000 new properties, something which many local residents were also opposed to. Now 4,000,000 square metres of land will be returned to rural status, preventing it from being developed, and Suma, the body that looks after tax administration in the Valencian autonomous community (Valencia, Alicante and Castellon provinces), has delayed collecting taxes from residents in the affected area.

Story from homesworldwide.co.uk

There are still plenty of good long-term off plan investment property opportunities in Spain, it has been claimed.

According to Off Plan International, investors in Spain now realise that longer-term capital gains are available and are prepared to buy off plan property and then stay in the market for a few years.

In addition, there are still areas that are at the peak of development, with an abundance of properties waiting to be bought and let out.

"Spain is still a popular place for Brits to invest. Rather than people investing and wanting their return back quickly, a lot of people are buying in a more educated way," said a spokesman.

In a new annual report on the international property market, the Association of International Property Professionals estimates that nearly £20 billion was spent by UK buyers on overseas homes last year.

The study shows that Spain and France are the top two markets for Britons buying property abroad.

Story from equitypropertyportfolios.co.uk

One recent news article in particular sheds some light on the thinking of the Spanish government in the current housing market. It's something I suspected would happen sooner or later.

Let's look at what's happening in Spain at the moment:

1. There's an over-supply of new build properties
2. Buyers are more cautious due to a variety of factors
3. The recent property boom has made it virtually impossible for Spanish first-time-buyers to get started
4. Tourism and housing sectors make up around 30% of Spain's GDP

So, there's a lack of affordable housing and a number of newly-built homes standing empty. Spain is also heavily reliant on it's building and construction sector as a generator of national wealth and employment - not to mention industries directly or indirectly dependent on this sector.

I think we'll see a lot more of what's happening in Catalonia: Regional governments cutting deals with the developers to acquire vacant developments for subsidised housing. Everyone wins.

• The developers manage their exposure to borrowing and stay afloat long enough for the next upswing in the market
• Spain's first-time-buyers get on the property ladder
• The excess property stock is gradually absorbed into the market
• The national economy suffers minimal disruption
• The value of property in Spain stabilises and (hopefully) increases closer to the rate of inflation

I'm not an economist so perhaps I'm missing some terrible flaw in this line of argument - what do you think?

Martin Dell, Kyero.com

The regional government in Catalonia signed an agreement with a number of developers, schools and public bodies yesterday. The agreement is aimed at improving access to housing for local people, and includes measures such as building 160,000 apartments for social housing over the next decade.

Two major political parties, the PP and CiU, did not sign the agreement. They support another piece of legislation that's been dragging through the regional parliament for the last two years: la Ley del Derecho a la Vivienda. If that legislation is passed, it will give the regional government the right to force owners of empty properties to allow them to be used for social housing.

Catalonia's capital, Barcelona, has the highest property prices in Spain, and homes along its coastline are likewise extremely expensive. Because of this, many people are unable to afford to buy a home.

Many Spanish cities do have large numbers of empty properties – the Spanish have a long tradition of investing in bricks and mortar rather than keeping money in the bank or investing it in other ways. Whether the regional government takes steps to force the use of these empty homes or builds even more new ones, the lack of affordable homes for rent or purchase in Catalonia means something needs to be done.

Story from homesworldwide.co.uk

This summer's bad weather has led to almost half of Britain considering buying a place in the sun, new research has found.

A survey conducted for Yorkshire Bank found that 43 per cent of people were thinking about purchasing a property abroad.

The poll of 1,000 people found the biggest draw for buying an overseas home was the prospect of guaranteed sunny weather, cited by 66 per cent of respondents.

A further 55 per cent said the dream of a more relaxed pace of life enticed them to buy a foreign pad.

Spain was found to be the most popular destination for prospective overseas property buyers, with 45 per cent of respondents saying that they would invest in a holiday home there.

An additional 31 per cent of people said that they would buy a property in the country as part of their retirement plans, while 32 per cent of those questioned said they would buy a property abroad as a long-term investment.

Meanwhile 15 per cent said they would consider buying a home abroad as their best option to get a foot on the property ladder.

However 44 per cent of Britons said they feared they could be ripped off as they did not understand the buying process abroad and 35 per cent said they thought they would find it stressful trying to recruit the necessary professionals, such as estate agents and solicitors.

A further 34 per cent said they were concerned about how they would negotiate a sale in a foreign language.

Commenting on the results of the survey, Yorkshire Bank's director of retail banking Steve Reid said: "Buying a house, let alone buying one in a foreign country, can be a challenging business.

"Despite this, Brits are still convinced that owning property in Spain is a financial decision worth pursuing

Story from inthenews.co.uk

Regular users of Monarch's Gatwick - Granada (Spain) route are unhappy about the low-cost airline's decision to cancel the service. Many British home owners in the area cannot understand the decision, claiming flights between the two airports were always full.

When Monarch first took off from London Gatwick for Granada in May 2005, the airline touted the Spanish destination as a 'city of culture.' Within two years, it had stepped up its Granada flights to five a week in response to a 30 percent rise in passengers going through Gatwick. The airline claims 62,000 passengers used its Gatwick - Granada route between September 2006-2007, accounting for 5% of the passengers at the Spanish airport.

However, the figures were not enough to persuade the airline to keep the route, and from November 4, the flights will cease. Visitors to Granada will face a four-hour round trip commute as Malaga becomes the airline's sole south of Spain destination from Gatwick.

A Monarch spokesman said that the route was not 'cost effective,' adding: 'Passenger demand on the Granada route has not met expectations and the aircraft [Airbus 320] used to operate these services will accommodate further route developments from Gatwick, which will be announced shortly. Passengers booked to travel after November 4 will be offered alternative flights or a full refund.'

Story from uk-airport-news.info

The value of British holiday homes abroad has fallen by as much as 15 per cent in the past three months.

A series of second home hot spots across the Continent has had thousands of euros wiped off the value of holiday villas, particularly those along the Mediterranean, an investigation by The Daily Telegraph has found.

Almost a quarter of a million Britons have bought homes abroad in the past decade, doubling the holiday home ownership numbers and with the majority buying properties as an investment.

Spain has been worst hit but there has also been a drop in property prices in France.

The holiday home market in Bulgaria, a destination that had become popular with British people buying abroad, has shuddered to a halt.

In Cadiz, in south-west Spain, prices have dropped by 15 per cent; in Alicante, on the Costa Blanca, prices have fallen by two per cent; in La Rochelle, in France, three per cent was wiped off prices and in Perpigan, one per cent. All in the past three months.

The average prices of a two-bedroom apartment in Majorca has fallen from £225,000 to £203,000, a three-bedroom villa in Lanzarote has dropped from £248,000 to £228,000. Prices in parts of Bulgaria, after having shot up in value by 40 per cent last year, have stagnated.

Property experts say that those who will be hardest hit are people who have invested within the past year - especially into new developments - and those who need a quick sale.

Full story from telegraph.co.uk

THOUSANDS of British people with second homes abroad are the latest to face a payment shock following the global credit crunch, as lenders across Europe raise their rates and tighten up their criteria.

British borrowers with euro mortgages, which have been popular in recent years because they have tended to be cheaper than sterling loans, could see their repayments jump by about £50 a month, or £600 a year - even though the European Central Bank (ECB) kept its main interest rate on hold last week.

This is because many variable euro mortgages are linked to rates in the wholesale markets, where banks lend to each other. These have gone up as America’s sub-prime mortgage melt-down has spread globally.

Meanwhile, lenders in American and Spain have been scaling back lending, particularly in problem areas such as Florida and the costas where property prices have been falling.

Miranda John at Savills Private Finance International, a broker, said: “British borrowers on fixed euro deals will not be affected, but some of those with variable rates will face higher repayments. This may come as a surprise given that the ECB left interest rates unchanged last week.” Most variable euro deals are linked to Euribor - the rate at which banks lend to each other in the eurozone. Short-term Euribor rates have risen in recent weeks as banks have become nervous about lending to each other in the wake of the credit crunch, as they have in America and Britain.

The three-month rate hit a six-year high of 4.79% last week - 0.79 points higher than the ECB’s main rate of 4%.

However, not all foreign home-owners with variable rate deals are in for a payment shock. In Spain, most loans are linked to 12-month Euribor, so rates are reset once a year - only those whose deals are due for renewal imminently will see their payments go up.

In France, many deals are linked to the three-month rate. Some lenders reset the rates annually, but others, such as UCB and Crédit Immobilier de France, change their rates every quarter.

Someone with a €200,000, (£138,624.26) 25-year repayment mortgage that is 1.2 points above three-month Euribor, would see payments jump by £54 a month from £866 to £920. This assumes their rate was reset on October 1, when Euribor was 4.79% - 0.62 points higher than it was three months earlier. It also assumes an exchange rate of €1.40 to the pound.

As well as raising rates, lenders in the US and Spain have been tightening their criteria.

As in the UK, many American lenders allowed borrowers to self-certify their income - in other words, borrowers did not have to prove their earnings. However, lenders have been stung by thousands of low-in-come customers defaulting on their loans as rates have gone up, and have subsequently clamped down on lax lending.

Kevin Fleury at Smartmoney-overseas, another broker, said: “Lenders now require much more documentation and some are pulling out of certain parts of the market.”

Bank United, for example, has stopped lending on short-term rental properties in Orlando, Florida, while many lenders are nervous of condo-hotels. These are like European apartment-ho-tels, where people buy a flat in a building with a hotel-reception.

In Spain, many homebuyers will find they cannot get such big mortgages as prices in some areas, notably Marbella and parts of the costas, have fallen.

In the past, some banks based their lending decisions on the valuation price, which could be higher than the price paid for the property because developers offered big discounts.

Suppose someone bought a property valued at €625,000, but got a discount so they only paid €500,000. The bank might still lend, say, 80% of the €625,000 valuation price, or €500,000.

Banks were prepared to turn a blind eye when prices were rising fast, but as values have come down they face lending on homes in negative equity.

As a result, most lenders will now advance only on the lowest price, whether that be the declared price or the valuation price. This means many second homebuyers will not be able to get such a big mortgage. Using the above example, the borrower would only be able to get €400,000 - 80% of €500,000.

Norwich & Peterborough building society, which offers mortgages in Spain, has recently changed its criteria. It used to lend up to 75% of the valuation price. However, it will now lend up to 75% of the valuation price or 90% of the declared price, whichever is lower.

The other main British lenders which offer loans in Spain - Barclays, Halifax and Santander, which owns Abbey - said they have always only lent on the declared price.

John said: “There are some good opportunities for people looking to buy in Spain. Distressed sellers who need to sell quickly may be happy to accept less than the market price, but don’t assume you will be able to borrow 100%.”

Story from timesonline.co.uk

Spain's national health service is usually lauded by expats, who praise its speed and efficiency. It may come as a bit of a surprise, therefore, to see that Spain's Federation of Associations in Defence of Public Health, FADSP, rate the service offered in two of the most popular Autonomous Communities with expats - Murcia and the Canaries - as 'deficient'.

The regions of Madrid and La Rioja received the same assessment. The Balearic Islands and Valencia, two other areas most popular with British buyers, were rated 'average', and Andalucia's service was classed as 'acceptable'. The Autonomous Communities that were considered 'excellent' were Aragon, Cantabria and Asturias, all in the north of Spain. (Aragon scored a perfect 40 out of 40.)

The ratings were based on FADSP's assessment of a number of areas of healthcare, including per capita expenditure, the ratio of GPs to adult residents, paediatricians to child residents and hospital workers to all residents. (If you're wondering about dentists, they aren't covered by the Spanish national health service.)

British expats relocating to Spain should get form E106 from the Department of Work and Pensions in the UK before they leave. This will entitle them to two years' treatment within the Spanish system.

People of legal retirement age should fill in form E121 as they're entitled to free healthcare under EU rulings. Employed workers will be entitled to coverage after their E106 runs out as they have been paying into the Spanish tax system. It's worth noting that the Spanish health service doesn't cover everything, and most Spaniards have top-up insurance. People taking early retirement from the UK will not be entitled to free treatment in Spain once their E106 expires and so should purchase full health insurance.

Story from homesworldwide.co.uk

Mortgages can now cost up to 1,000 euros a month, against 600 euros for a rented apartment.

The highest rents are in the El Limonar area in Malaga city and in Marbella.

The price of a three-bedroom house in an average area of any municipality in the province of Malaga works out at 230,000 euros. A full mortgage on such a property works out at 1,100 euros a month over 30 years. And in the same average area, one can rent the same apartment for 600 euros a month. This changes traditional patterns.

Rising property prices, rising interest rates and the longer time it takes to find a buyer make renting a more profitable - or less expensive - proposition at this time. In recent months, more and more people are renting rather than buying, which is quite logical in view of the fact that a monthly rent can be half a monthly mortgage payment for the same property.

Both rental and purchase prices depend on location, of course, and data provided by the Unicasa estate agency tells us that a 30-year mortgage on two or three-bedroom houses can vary by up to 50 per cent. In the Teatinos area of Malaga city, for example, which is one of the principal arteries of the capital, one pays an average 1,400 euros a month in mortgage, at a purchase price of 280,000 euros. To rent the same house works out at 750 euros a month.

According to María Basanta, a salesperson in the Unicasa agency, people who purchase in this area have usually sold a previous house in another, so that their monthly mortgage payments generally work out at about 900 euros a month.

“Rents are becoming more reasonable, and are generally below the 700 or 750 mark. And to buy the same property would cost you 282,000 euros,” she says. In her view, demand for rental properties is growing, although most people still prefer to buy. “The current demand for rented properties is due exclusively to the high cost of purchase,” she adds.

The same profile applies to other areas of the city, such as the Avenida de Molière and Parque Litoral. In this first area, an apartment costs an average 290,000 euros (1,450 euros a month in mortgage payments), while to rent the same property costs 700 euros a month. In the second area, prices are slightly higher, with a house working out at 300,000 euros to buy (1,500 euros a month in mortgage payments and 750 in rent).

Young people generally head for cheaper areas, and one of them is the Avenida Juan XXIII part of Malaga city. Here one can find a three-bedroom apartment about 30 years old for 180,000 euros (900 euros a month in mortgage). The rent for the same apartment is about 550 euros. The same situation applies in the Ciudad Jardín, Huelin, La Luz, Miraflores de los ángeles, Las Flores, Camino de Suárez and Carlinda areas of the city.

There are many smaller apartments available in the city centre, mostly in restored buildings, with rental prices ranging from 500 to 550 euros a month. But mortgage repayment prices are much higher, as they are in areas such as Victoria, Perchel, Trinidad and Fuente Olletas, where it is rare to find a property at less than 240,000 euros (1,200 euros in monthly mortgage payments).

The average rent for average-sized apartments in Malaga city centre, the El Palo, Materno, Hospital Civil and Avenida de la Rosaleda areas is 600 euros a month. In all these areas, rent works out at between 30 and 40 per cent less than purchase.

Houses in the eastern area of the city are more expensive, in areas such as El Limonar, Cerrado de Calderón, Pedregalejo, Los Paseos de Sancha and Reding and the Pintor Sorolla area, where one pays between 1,000 and 1.200 euros in rent. To buy the same apartment would cost between 540,000 and 600,000 euros (2,500-2,800 euros a month in mortgage). Prices in the Avenida Andalucía area are slightly cheaper, at between 850 and 900 euros a month, although these houses are generally bigger.

Then we have shared apartments in Malaga city, which is not as popular a phenomenon as in other big cities throughout Spain, although it goes beyond the traditional group of students sharing accommodation these days. Many families rent or buy three-bedroom apartments and use only two of them, renting out the third in order to meet high rental or mortgage costs.

The situation is somewhat similar on the Costa del Sol and the city centre area of Malaga, the exception being Marbella, where a three-bedroom apartment costs an average 250,000 euros (1,200 euros a month in mortgage) in areas such as Miraflores, while the rent of the same apartment works out at no less than 800 euros a month (the average is 900).

Full story from surinenglish.com

The Spanish tax office introduces new measures to prevent the under-declaring of property prices.

The Spanish tax office is set to utilise a new computer programme that will immediately inform them of any property sale in Spain, giving them the opportunity to check whether the declared sale price is realistic.

Over the past few decades cases of under-declaring property sale prices have become increasingly common, with the result that the seller pays less capital gains tax.

Generally this is achieved by declaring a lower sale price, with the difference paid in cash, and offers no benefit to buyers who are likely to find themselves issued with an increased capital gains tax bill when they come to sell, taken on the excess that the original seller was eligible for.

The programme, which will be activated later this year, will work by linking tax authority computers to those at the public notary and property registry offices throughout Spain, a move that will be backed up with an increased number of tax office employees who will focus directly on property tax.

The team of 2,000 dedicated tax officials aims to exceed the 46,402 inspections carried out in 2006, which was already a huge increase of 90 per cent on 2005.

The ministry of finance is keen to eliminate the custom of under-declaring, and will be protecting the finances of unwary property buyers from the UK in the process.

Story from homesworldwide.co.uk

The Valencia property developer Llanera has become the first high-profile victim of the credit crunch in Spain, declaring insolvency yesterday after failing to meet payments on €748m of debt.

The fashionable builder, known for its links to Charlton Athletic Football Club, was unable to reach agreement with Lehman Brothers and other banks on a refinancing deal, a sign that foreign creditors are no longer willing to underwrite Spain's property market.

The rating agency Moody's said default rates in Spain could jump from 0.37pc to 5.5pc if the economy suffers a hard landing, with an outside risk that values could fall by 20pc.

Alberto Matellan, an economist at Inverseguros, said arrears would never reach US levels because of Spain's "solidarity" culture. "The extended family steps in to help meet the payments," he said. Defaults are very rare."

Moody's said property prices had risen 280pc since 1997. While most banks are well able to weather a downturn, the regional cajas, or savings banks, are vulnerable. Many of the cajas have leveraged their risk by launching their own property ventures, much to the horror of the Bank of Spain.

The governor Miguel Fernandez Ordonez said euro membership was the root of the trouble, causing the economy to overheat badly and pushing house prices 35pc above their sustainable value. Household credit grew at a 16.4pc rate in June, and corporate credit at 24.5pc.

"The single monetary policy has meant that excessively loose conditions for our economy have been almost continuous. A less relaxed tone would have been better for our needs," he said.

Interest rates halved almost overnight when Spain joined the euro.

Llanera said it faced "extreme difficulties" as a result of reliance on short-term borrowing. Credit costs have shot up since the collapse of the market for commercial paper and CDOs (collateralised debt obligations).

It blamed the squeeze on the "evolution of the Spanish property market and the relentless increase in Euribor". The Euribor rate, used to price floating rate mortgages in Spain (98pc of the total), has jumped to a six-year high of 4.72pc.

Eight rate rises by the European Central Bank since December 2005 have taken their toll, but the final blow was the sudden widening of Euribor spreads by an extra 70 basis points over ECB rates since the summer squeeze.

Almost 800,000 homes were built in Spain last year, leaving a glut of 300,000 properties in the market.

Story from telegraph.co.uk

Award-winning school in Almerían town of Albox to teach in both English and Spanish.

Its small native population means that, despite having far fewer British residents overall than areas like the Costa del Sol and Costa Calida, Almería province has a high number of British expats as a percentage of its population, and the highest number of immigrant school pupils in Andalucia. The Martin Garcia Ramos school in Albox has students from 22 different nationalities making up 20% of its pupils, and the majority of foreign pupils are British. Now it’s been announced that, as of 2008, the school will have bilingual status, so important subjects will be taught in both languages.

Excelling in language tuition, with all pupils leaving fluent in two tongues, won’t be the only thing for the school to boast about. It’s received prizes for its extracurricular arts activities, and was one of five schools in Andalucia to receive the 2007 Merit of Education award. Now expat families moving to the area need not worry about putting older children into state school, and Spanish children’s already-excellent knowledge of a second language will be improved further.

If you’re thinking of buying a property in the Albox area, do note that this part of Spain has a high number of illegal builds. Make sure you employ a lawyer not connected with the developer or vendor of any property you’re hoping to buy. If you’re buying off-plan, make sure the land is legally suitable for building on and that the developer has planning permission and building licences. If you’re considering a resale, check these things and that the property has a licence of first occupation plus mains utilities.

Story from homesworldwide.co.uk

Spanish government plans legal changes to boost rentals that will help property owners as well as tenants.

If you want to rent a property long-term in Spain, there are many laws that will protect you as a tenant. If your contract lasts for a year or more and the property you are renting is your sole home, you are legally entitled to request to stay in that property for five more years and rent increases are regulated to prevent large monthly price rises. All these things, though, put some property owners off letting their properties as they could be tied up with tenants for five years and, should the tenant default on the rent, getting permission to evict a tenant is a long, complicated and costly process. Now the Spanish government is debating the introduction of express evictions to encourage more property owners to let out their homes long -term.

The Spanish government is also aware that many young and low-paid Spaniards are priced out of their country’s housing market, and so is launching two new schemes to make it easier for people to be able to afford to rent the sort of home they need. Tenants, no matter what age they are, will be entitled to tax relief, and 22-30-year-olds in full-time employment who earn less than 22,000 Euros per year will be entitled to a direct accommodation subsidy of 210 Euros per month.

In Andalucia the regional government is going a step further and building hundreds of thousands of properties to use as social housing, where low-income families will be guaranteed a home costing no more than 25% of their monthly income to rent if they earn less than 500 Euros per month and no more than 33% of their monthly income to rent or buy if they earn between 500 and 3,100 Euros.

All this will boost Spain’s long-term rental market and, while the weekly yields are not has high as they are in peak season for holiday lets, the prospect of a stable year-round level of rental may well appeal to Britons who own property in Spain that they plan to keep for the medium to long term.

Story from homesworldwide.co.uk

Can you remember how much you were earning in 1977? Depending on your job and age it could have been £50 per week, £70, a £100 or perhaps more. In 2007 these amounts would barely cover the weekly supermarket bill.

How much would your 1970s salary buy you today? Would you like to be living on the wages you earned in 1977 but still have to pay today’s prices? It’s a frightening thought. That’s inflation for you.

The point is that unless you take steps to see that your income and capital keep pace with inflation, in 30 years time you may find that you can only afford the supermarket bill and nothing else.

After all, 30 years in retirement is quite realistic at the beginning of the 21st century. Medical and scientific advances means that a healthy 65-year-old man can expect to live until he is in his late 80s or early 90s and a woman ever older. Life expectancy has increased enormously and will increase further as healthy living becomes more prominent and medical and scientific research continues successfully. With people also taking early retirement in their 50s, some can expect 30 or 40 years in retirement, almost half of their lives!

Pensions were meant to provide an income for life but that was when people weren’t living so long. State pensions do not keep pace with an individual’s real inflation rate and company pension schemes are not coming up to expectations and in some cases being stopped.

If you are living outside the UK, state benefits can be unavailable to UK nationals. The older you grow the more likely you are to require health treatment and nursing care. The cost of private health insurance and long-term nursing care is expensive and tends to be consistently higher than inflation.

It is widely accepted by economists that the official inflation rate rarely reflects people’s personal inflation rate. The basket of goods that governments use to calculate inflation contains a representative selection of goods for people across all ages and all incomes. But people in various age groups and different income brackets don’t spend their money on exactly the same things and their personal inflation rates are generally higher than the official rate.

Indeed, research has shown that in the last year it has been much higher. At the end of 2006, personal or ‘real’ inflation for retired people in the UK was around 9% when the official inflation rate was 3%. At the time of writing the inflation rate for retired people has dropped to around 2%. The fall in the official rate is partly based on lower food prices due to a price war between supermarkets but food prices are expected to rise soon due high wheat prices. Oil has also recently hit a record high of $82 a barrel, which means utility bills could rise again. This shows that inflation can vary significantly and can be much higher than expected.

The reality is that unless you invest to overcome the destructive effects of inflation the purchasing power of the money you have today will be worth just over half the amount in 20 years time. For example, if your personal inflation rate is 4%, £100,000 today could only buy £66,483 worth of goods and services in ten years time and £44,200 worth of purchases in 20 years time. That’s a drop of 34% and 56% respectively. You may as well have thrown half your money down the drain. The effect is the same.

If you have a personal inflation rate of 6%, a £100,000 nest egg today would be worth £53,862 in 10 years time, or 46% less than now, and just £29,011 in 20 years time – that’s a drop in value of a whopping 71%! If you should live 30 years into retirement your money could be worth virtually nothing unless it keeps pace with inflation.

All this means that people in retirement have to plan to increase their income and capital growth so that the purchasing power of their money remains strong during their retirement years. Keeping the bulk of your wealth in a bank account is not the answer even though it may feel a safe option. Inflation will attack your capital particularly if you spend the interest income. Even low inflation can have a detrimental effect over time.

It is not just inflation that is so damaging to your savings. Interest is subject to taxation and minimises the actual value of interest you are earning.

To protect yourself from inflation and taxation you need an investment plan that provides capital growth and earnings higher than inflation and where your money is legally shielded from unnecessary taxation. This can be achieved with an investment portfolio based on diversified asset allocation placed in a vehicle that can legitimate reduce tax liability.

Article by Blevins Franks