MORTGAGE MATTERS
 by CONTI Financial Services

MORTGAGE MATTERS
by Conti Financial Services

St Lucia – The New Caribbean Hot Spot?

A Caribbean island often overshadowed by its more famous neighbours could be a hot tip for investment, according to recent reports. St Lucia, already known for its friendly locals and idyllic scenery, is seeing a new wave of luxury property development, with prices which are still well below those in Barbados – around 40 to 60 per cent lower, according to the St Lucia tourist board. And, it’s a year-round destination, with direct flights from the UK and USA. Such has the island's tourism increased, that British Airways recently started a direct service three times a week.

Just 27 miles long and 14 miles wide, St. Lucia lies between Martinique and St. Vincent and north of Barbados, in the shape of, according to many, a mango! In addition to its beautiful white beaches, banana plantations, coral reefs and tropical rainforest, it has grand plans for regeneration and redevelopment.

This looks set to make it even more popular, not least with celebrity fans such as Amy Winehouse, who has been pictured holidaying there recently, and whose trip has been widely publicised by the media. In fact, her presence has provided a vital boost to local tourism, according to St Lucia’s minister for tourism, Allen Chastanet, who is reported to have said that the singer's trip has reflected positively on the Caribbean Island.

Celebrities aside, St Lucia could also offer a solution to prospective property investors and people hoping to retire abroad, who are struggling to make a decision about location due to the global economic crisis. It seems that the Caribbean, and in particular the holiday island of St Lucia, seems to be holding its own – for the time being anyway. In a recent report in the UK’s Independent newspaper, Allen Chastanet said that property prices have remained robust throughout the financial crisis, the key being that they didn't have a boom to begin with, so building levels were at sustainable levels.

Therefore, they’re not having a bust. According to Chastanet, the only price softening that has taken place has been as a result of sterling weakening against the dollar, so sellers have been willing to bend prices a bit for British buyers to reflect this currency shift. Property, whilst not as affordable as hot spots such as Spain or Florida, ranges in price from around $300,000 right up to $4m.

Some homes on the island are sold as owner-occupier, targeted more towards people looking to retire to a hot climate, but the majority of the properties are intended as an investment. What often happens is that the buyer can use the property for a certain number of weeks each year, and it’s then rented out to holidaymakers for the rest of the time. The rent provides an income for the owner, or helps to pay for any mortgage they’ve taken out to buy the property in the first instance.
 
Buying property in St Lucia

The property purchasing system in St Lucia is similar to that in the UK except non-residents must acquire an ‘Aliens Landholding Licence’ from the government and this must be registered by a local lawyer. There is a non refundable fee of $1,500 for this. There will be a 10 per cent future tax liability on the property for when it is eventually sold. This tax liability, however, can legally be avoided by buying the property through a company which can be set up at the time of the purchase.

Company formation will take about six weeks and obviously comes at a cost itself. If the property is part of a resort development, and the overwhelming majority are, then service charges may apply, based on square footage. If the home is rented out, you can expect service charges to be higher as regular cleaning has to take place.

Affordability, affordability, affordability

It’s vital that you determine how much you can afford before embarking on the purchase process. An 'Approval in Principle' (AIP) will do just that – it will tell you exactly how much you can borrow and what price range you can realistically consider when conducting your property search.  And it will avoid potential disappointment later on in the buying process, if you’ve got your heart set on a property which is simply beyond your means. 

An AIP will also put you in a much better position with developers, or private sellers, and prove to them that you’re a serious buyer. Given a choice, they’re bound to prefer a purchaser who can demonstrate that they have their finance in place, rather than somebody who has yet to consider how to fund their dream purchase. Buyers with an AIP could also be better placed to negotiate price.

Do your homework and take advice

If you’re going to rent your property out, you need to check the terms of the income you will receive. For some investors, the income obtained relies on the resort as whole making a profit, whereas in other resorts, they receive a cut of the total revenue instead. As with any other destination, it’s of paramount importance that you do your research before signing any contracts. Ensure that you visit the property. If the resort seems very quiet, then it may not be making a profit, in which case you're unlikely to get much of a regular income and you’ll have to rely on potential capital growth instead.

Take specialist legal advice and enlist the help of a tax expert, especially if avoiding tax is one of the main reasons you are buying in St Lucia. It’s important to get it right in the first place and avoid complications further down the line.

And don’t be tempted to rely solely on rental returns to pay your mortgage, especially if your repayments are in US dollars and therefore subject to currency fluctuations. The rental market in St Lucia is strong, but you can never take this as a given.

Types of mortgage

The types of mortgages available in the Caribbean are similar to those offered at home. There are a variety of interest rates and these can be fixed or variable. The interest rate payable is usually driven by how much of a loan is required compared with the value of the property (the ‘Loan to Value’ or LTV). Generally speaking, the bigger the deposit you have to put down on a property, the more competitive the mortgage deal will be. In the Caribbean, you’ll be expected to have at least a 30% deposit, the minimum loan is $500,000 or £250,000 and the mortgage can be on a repayment or interest-only basis. The length of the mortgage term may be shorter than you’re used to at 15 to 20 years.

Currency concerns

One major concern at the moment, particularly for Britons looking to buy in the Caribbean or America, is the fall in the value of sterling. Around this time last year, the pound was worth two dollars, but it now it buys a lot less. Someone looking to buy a property in dollars could consider ‘fixing’ their exchange rate in advance, so that they know exactly how much they’ll need to pay. How this works is that you buy an option to buy a set amount of dollars at a set price at a specific date in the future. This insures you against any adverse currency fluctuations which happen between making an offer on a home and actually paying for it. 

Conclusion

Generally speaking, the Caribbean mortgage market does lack the sophistication and range of products available in the mature mortgage markets of North America and Europe. But a mortgage specialist, such as Conti will have familiarity and understanding of the lenders and will know of any restrictions and administration requirements, which can save you a lot of time, cost and hassle when arranging a mortgage.

About Conti Financial Services : Established in 1994, Conti has helped thousands of people to arrange their mortgages in more than 45 countries. Its experienced teams of specialists ensure that every step of arranging your mortgage is handled promptly, efficiently and professionally.  And, through partnerships with expert companies, Conti can also provide help with areas like insurance, legal advice and currency exchange.

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