Sterling Plunge: Not All Doom and Gloom
The weakness of the pound is already affecting thousands of property owners with an Euro mortgage, and according to many it would not seem that the English currency will revive in the short run. As we worry about the adverse effect of the exchange rate, some banks are already making predictions in respect of where the pound will be in June 2009, and you would be surprised that they are mostly well away from the terrifying “parity” word.
The chart below has been taken directly from the Sunday Times (Money supplement):
| Forecaster | Against Euro |
|---|---|
| HSBC | 1.08 |
| Barclays Wealth | 1.37 |
| Morgan Stanley | 1.27 |
| Merry Lynch | 1.22 |
| UBS | 1.16 |
| Average | 1.22 |
Even if the worst forecaster got it right, the Euribor applied by the banks (higher than the Euro current interest rate) is now at 3.025%, and there is almost unanimity in that they should be in the region of 2% by mid next year, which would mean that mortgages would cost up to 34% less than at the highest Euribor mark (5.5%), at the beginning of October 2008, comfortably making up for the depreciation of the British currency.
Expats and pensioners living on a fixed income paid out in sterling may have lost in real terms approximately 30% of their purchasing power in the eurozone. This is certainly a problem for many thousands of people but is already being tackled successfully by many by either buying in Gibraltar, a good option for Costa del Sol residents, or buying by internet in the UK, for certain products.
And for many who have decided to sell, the benefits are clear: if they managed to buy at a time when the sterling was trading at 1.5 times to the euro and can sell when a euro buys you 1.08 pounds, they are getting a good deal. In this respect many private purchase contract holders who have pulled out of their contracts due to contractual default by the developer are getting, in some instances, 40% more pounds than those they invested.
Finally, anyone deciding to buy one of many bargains which can now be found will necessarily need to take out a Euro mortgage to cover as much as possible of the purchase price so that the immediate exposure to currency risk is limited to the deposit (for example, a typical 70% mortgage). Of course, the euro mortgage repayments will still have to be funded from sterling sources, but at least the exposure to the unfavourable exchange rate is minimal and staggered over a considerable time. And when the pound/euro exchange rate returns to normal values, your mortgage capital in euros will still be the same, but in pounds it will have shrunk to 70-80% of the original amount.
If you live in the UK and have a property in Spain, and you are struggling to pay the mortgage, I would advise that you rent the property out, even if it’s below market rental value. You will be receiving the rent in euros which will cover a large amount of the monthly mortgage repayment. If you are worried about non-paying tenants, you must note that the goverment is enacting new laws which will allow evictions to be performed in a very short period of time.
I have heard a lot about new Landlord and tennant law but I would appreciate some clarity.
I think that the Marbella property market would benefit from these new laws because investors would feel protected from delinquent tennants.
It is just a shame that it has taken until now to introduce these laws. If they had been in force before the property market declined it would have made the situation easier.
We should organise a memo to send to the government to suggest what they should do help the economy and the Spanish property market.
Guy Marrison
http://www.marrisonproperties.com
I fully agree with you Guy, this Government is on the whole totally incompetent when it comes to protecting our main source of income, tourism and foreign investment. Not long ago they were criminalizing property developers for making heaps of money but of course nothing was said about the thousands of families who benefited from them as well as the huge returns many many investors obtained. Now these same families are struggling to make ends meet and the Goverment blames the US credit cruch!
I will be happy to join you in this action, which I think all agents of the Costa del Sol should do.