Buying a Euro home

For equity-rich Londoners dreaming of a second home abroad, the euro has delivered what economists call "cost transparency". In other words, it is now easy to compare prices of similar properties in different countries.

For example, if your budget is up to e500,000 (equivalent to about £300,000), this could buy you a château in Burgundy, a smart villa on the Costa del Sol or a sprawling hillside house in Tuscany.

London is by far the most expensive city in Europe for buying or renting property, which makes purchasing elsewhere attractive, especially as the quality of life abroad always seems so much more exotic than here.

The introduction of the euro has already triggered a buying spree across the Continent and along the Mediterranean coast. While a good deal of the cash that has gone into property has been "mattress money" of dubious origin, many UK purchasers are seizing the moment and buying a second home now rather than later.

"A lot of buyers believe the Government is preparing the public to accept the euro, and feel the pound will have to devalue by at least 10 per cent to join," says Vivian Bridge of estate agent North and West France Properties. "They want to buy now because they can get more for their money."

While this mini-boom has caused prices to jump by up to 20 per cent in some areas of France and Spain, experts warn that prices could fall back if properties already owned with mattress money are sold en masse and reappear on the market.

If so, prices are likely to be hit hardest at the lower end of the market, particularly at cheap apartment schemes in Spain, where developers have adopted a "no questions asked" policy when presented with large amounts of cash. So perhaps it is a time for studying the market, rather than rushing in.

According to Knight Frank, a budget of e500,000 would buy only a one-bedroom flat of about 60sq m in a prime area such as Kensington, but a 90sq m flat in Paris, Munich, Madrid or Milan.

The South of France is at the top of the Mediterranean price league. Next is Majorca, then Marbella. Portugal is still cheaper than Spain, but prices are rising fast in the western Algarve because of infrastructure improvements.

Italy, like France, has lots of cheap rural properties. Greece, with its sunny climate and peasant charm, is still bargain territory, though the country is modernising and prices are rising.

Ian Purslow, of south-west France estate agency Purslow's Gascony, says one confusing issue is the euro symbol itself. "It looks too much like the pound sign. We have dealt with potential buyers who have mistaken the euro price for pounds."

Since its launch nearly three years ago, the value of the euro against the pound has fallen about 13 per cent, from around 71p to 62p. A floor may now have been reached.

There is a good argument for opening a euro bank account now: if the UK does join the single currency and the euro strengthens, the value of your savings will rise.

Remember, too, that European property markets have wide variations in terms of base values, tax rates, agency fees and legal costs. For example, in Italy associated purchase costs and taxes can boost the overall price by another 20 per cent.

Useful numbers: Cater Allen Bank (0800 716177); Citibank Euro Deposit (0800 004500); Barclays Euro (0845 600 6664).