This comprehensive guide explores the impact of fluctuating GBP-Euro exchange rates on UK property buyers in Europe. By considering key upcoming events and market trends, we offer valuable insights and speculation on potential changes, helping buyers make well-informed decisions. However, readers should bear in mind that accurate predictions are impossible to guarantee.
Understanding exchange rates
UK property buyers in Europe, whether they have their eye on a beautiful two-bedroom apartment in Salzburg or a chalet in Trento, should have their other eye on GBP-Euro exchange rates.
Due to upcoming economic events, exchange rates fluctuate all the time – every minute of the day. You’ll know that, of course, from when you get your holiday cash, and we all know how annoying it is when the pound sinks just when you’re about to head off.
However, when buying a property abroad, changes in the exchange rate can have a huge effect on your property investment in Europe. The process of buying a home in Europe takes time, as it does when buying a property in your own country, but the difference is that if you have made a commitment to buy one day, but have to actually pay in two or three months, the one thing you can guarantee is that exchange rates will have moved.
For example, you could have your eyes on €1,000,000 chalet in France. Then, due to some event completely out of your control (referendum, election, pandemic…) the GBP-Euro rate moves from €1.15 to €1.10, your ski chalet now costs you an extra £39,000. Of course, it could have gone the other way and saved you tens of thousands, but you won’t know until the moment you complete.
If that prospect makes you uncomfortable about your property investment in Europe, the good news is that you can lock in your exchange rate as soon as you commit to the purchase via a forward contract.
Currency market trends
Still, human nature being what it is, some will want to take the chance.
UK property buyers in Europe can prepare by considering upcoming economic events and market trends, which will them to make well-informed decisions. However, it is worth bearing in mind that accurate forecasts are impossible to guarantee.
The three main determinants of exchange rates are monetary policy, politics and its likely effect on business, and the economy.
Signs of economic prosperity or otherwise are released in the UK by the Office for National Statistics (ONS), and include Gross Domestic Product (GDP), inflation, unemployment and retail sales. There is also data from external sources, such as on consumer and business confidence. Other countries and the eurozone as a whole release the same data. Generally, economic success leads to a stronger currency.
The monetary policy of a country is down to the central bank – the Bank of England (BoE) in the UK or European Central Bank (ECB) for those countries using the euro (the eurozone). They aim to control inflation and grow their economy using interest rates. Interest rate decisions are taken generally monthly, and are the most influential factor on the GBP-Euro exchange rate.
Lastly, politics: the GBP-Euro exchange rate dropped by around 10% after the Brexit referendum and has never recovered to its previous strength even eight years on. Then again, in December 2019 Boris Johnson’s Conservative Party election win also, briefly, boosted the pound. As a general rule, anything leading to a strong, stable, pro-business government will support the currency.
There are also issues around so-called ‘safe haven’ currencies, which are supported in times of crisis, such as the Covid-19 pandemic and war in Ukraine. The pound is no longer considered safe, so will fall in a crisis. The euro is still a safe haven generally, but was not regarded as such when the war broke out on its eastern border in February 2022, and weakened decisively.
Important upcoming dates
The following are some of those upcoming events. Although these are for June 2023, the same pattern will occur every month.
- June 1st: Europe’s inflation and unemployment rate
- June 5th: UK retail sales
- June 13th: UK unemployment and earnings
- June 14th: UK GDP
- June 15th: ECB interest rate decision
- June 21st: UK inflation
- June 22nd: Bank of England interest rate decision
- June 23rd : UK retail sales and consumer confidence
- June 26th: German and French consumer confidence
- June 29th: German and Spanish inflation rate
- June 30th: Unemployment rate in key European economies.
Note, 2023 is not a big year for elections. However, 2024 sees both a US and UK general election, as well as European parliamentary elections.
Another ongoing concern will be the war in Ukraine. Any sign that peace could be close is likely to boost the euro, while worries about a cold winter in 2023-24 again without Russian energy supplies could weigh on the euro.
How can I prepare for this?
Since it is a fulltime job keeping tabs on such events and their potential implications, Smart Currency can do it for you.
As FX specialists for international property, Smart Currency Exchange provides a daily currency note when they summarise and provide insight on currency markets. If you are moving ahead with your purchase of a ski property, simply give your designated account manager a call to work out the best, safest approach.
That may well involve a forward contract which locks in your exchange rate for up to twelve months, giving you complete peace of mind.
