How can the exchange rate effect be minimised?

Exchange rate commentary

Where does the weak pound leave UK-based foreign property investors?

It’s fair to say that 2008 wasn’t the best year for UK-based overseas property investors.  First the credit crunch, then the weakening of sterling against major currencies, including the euro, have eroded confidence in foreign property as an investment.  British buyers who were used to getting €1.3 or even €1.4 for their pound could be forgiven for feeling priced out of the market.  But British investors are still buying in the euro zone.  So how are they doing it?

Most foreign property purchases are made via a deposit and mortgage.  The deposit might typically cover 20, or 30% of the price and it’s really only that figure that’s affected by the weakness of the pound.  You might have to find an extra couple of thousand pounds to fund the deposit, but if you take out a euro-denominated mortgage to cover the other 70-80%, then you’ve no more exposure to exchange rate risk.  If it’s a buy to let property and your rental income is also in euros, that will match your mortgage payments and reduce exchange rate risk. 

It’s also worth remembering that the economic slowdown means that the properties themselves are cheaper.  For buyers whose main focus is the exchange rate, it’s not always easy to appreciate this.  But some have recognised the value that’s available, and purchases are being made, even within the euro zone.

Even within Europe bargains are still to be found, for example: the Polish zloty has weakened significantly against the pound since the start of this year, meaning that properties in this attractive EU country are now cheaper than they were at the end of 2008. Sterling has appreciated by 20% against the Polish Zloty in the last month, meaning that a PLN 234,577 city centre apartment would have cost £54,050 at the beginning of January, but is £44,938 at the beginning of February, over £9,000 cheaper.

Nothing is set in stone.  The euro itself came under pressure in January as economic data revealed the extent of the slowdown in the euro zone.  Investors who are comfortable with their own risk profile and who have done their homework will be ready to take advantage of any opportunities that arise.

Posted February 2009, by Louise Reynolds - Property Venture^®

Property Venture^® is an independent, UK-based agent. We help time-strapped investors and holiday home buyers, buy abroad by guiding through the buying process, so reducing the hassle. Overseas members of NAEA. This means we have been subjected to the membership criteria and have signed up to follow the professional Code of Conduct established to help you, the potential buyer or investor, to buy property with confidence.  

Copyright Property Venture^® 2009