Do you really still want that second home abroad?
Second homes abroad has been a thriving market in recent years, driven by a few key factors but clients may now ask whether to still consider it following the latest threats to the airline industry.
The first question which intermediaries might face is about relative price.
Properties across Europe (and elsewhere) have been made cheaper in recent years by the relative strength of sterling, which has not only made properties look cheaper in pounds and pence, but also helped cut costs associated with legal and other services.
It is also the case, for example, the rest of Europe has, generally speaking, experienced far lower house price increases over the past decade in total than the UK.
The second major factor has been the benign inflationary environment as with it has come historically-low interest rates. In fact, it has been half a century since the cost of borrowing money has been as low for as long a period.
This has significantly helped those looking to remortgage or otherwise borrow additional money to obtain a second property. Those with significant amounts of equity in their own primary residences have been further helped in this respect by the strong rise in UK residential property prices in the past decade.
The third factor has been the rise and rise of cheap air travel, which has opened up property markets in areas previously unheard of for anyone but the seriously wealthy.
It is this factor that now is under threat from the new rules governing air travel, which, as of writing, look unlikely to ever be reversed. Why might this be so?
Putting aside the geopolitical factors which suggest the so-called “war” on terrorism might never actually be won in the sense of battlefield gains, there are two issues now affecting the ability of second homeowners to actually enjoy their assets.
The first of these is the “hassle factor”, particularly for families of younger children, of actually taking oneself through an airport, onto a plane and off at the other end of the journey.
Much of the second-homes abroad market has been pitched precisely on the ability to quickly and easily enjoy a new flat or house somewhere in the south of France, Spain, Italy, Greece or one of the newer EU member states or members to be in Eastern Europe.
Do people now really want to start off their future summer or Christmas holidays by having to clutch clear plastic bags while sipping on baby’s milk?
The issue of just how many additional hours spent in airport lounges is tolerable before flying for as little as 45 minutes in the air to spend a long weekend somewhere is likely to be hotly debated around the kitchen tables of the UK’s middle classes.
The other major issue refers back to the first factor listed above, ie price. Airline stocks have taken a battering over the latest news, but it is not yet clear whether markets have properly understood the ultimate impact on the flying public.
Well before the latest alleged terrorist plot broke into the open, governments around the world were strongly signalling their intent to start taxing airlines on the basis of environmental concerns linked to carbon emissions.
Having enjoyed a distinct fiscal advantage over most other forms of transport in the 100 years since the first flight, airlines around the world face a strong possibility of additional taxes added to passenger tickets. The real key to the low-price flying revolution has not been fiscal advantages, however, but the ability to better utilise assets, ie aeroplanes, by slashing turnaround times.
This has been achieved by adapting cabin personnel and passenger behaviour, but also by targeting smaller airports, with less competition for takeoff and landing slots.
Additionally, companies such as EasyJet and Ryanair have in the past couple of years specifically been ordering new aircraft from makers Boeing and Airbus with bigger overhead ‘bins’ in order to maximise the size of carry-on baggage in order to minimise the amount of luggage in the hold.
This not only saves time in getting a plane filled with people and luggage, but also cuts costs and boosts profits as passengers end up essentially paying airlines money for the pleasure of acting as baggage handlers!
All of the above is intended to hasten turnaround times as planes on the ground are loss-making pieces of metal and plastic.
But now, this model is now essentially broken: airports big or small will be forced to adhere to gold standard security rules, hand-luggage is banned and unlikely to ever be treated in the same way again (assuming stories of liquid or gaseous explosives prove true), and the low-cost airlines may find themselves with planes that have been designed with not enough baggage space in the hold to capture the additional hand luggage previously brought on board, but which now will have to be checked in.
And the amounts are not small: a plane with 180 seats and relying on one of the higher 8-10 kg hand luggage allowances meant to speed up short-haul flight turnaround times would suddenly have to find space for up to an additional 1,500 kg of hold luggage.
Assuming a maximum lift load of, say, 25kg imposed by the Health and Safety Executive for baggage handlers, that would mean an extra 60 lifts from cart to secure stowage in the hold. If each lift takes 30 seconds that is another 30 minutes of work on the ground. If it takes a minute that is another hour’s worth of work on the ground.
Adding manpower could cut this, but only to an extent because aircraft luggage cannot simply be thrown into the hold: it has to be packed according to strict specifications against the stress loads dictated by amount of fuel carried, total baggage weight, and so on.
Imposing additional luggage charges on passengers could take some of the sting out of the tail for the airlines, but would under present circumstances likely be seen in the same light as war profiteering was in the 1940s.
The challenges, of course, apply to all aircraft and airlines, thus serving to identify how differences between low-cost and ‘regular’ airlines may be evened out.
More to the point of this article, it illustrates how IFAs may need to take on board a different attitude towards 'best advice' for clients looking for second residential properties abroad for use mainly as holiday homes - even if it involves talking about issues that have nothing to do strictly speaking with financial advice.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Jonathan Boyd on 020 7484 9769 or email [email protected].IFAonline
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