Like the title says, umlauts such as ä or ö in site directory path stops the local site from working.
For example I have my clients’ files in directory called Työ (Finnish for work) and if I create a site in a subfolder of Työ, the local site fails to work (502 request error), but if I create a site to a different folder without umlauts, for example \Tyo\Client X\clientx.local\ everything works as expected.