Over the past year a series of surprises has sent the value of sterling on a rollercoaster ride, from our decision to leave the EU to Jeremy Corbyn’s election gains, but how much do currency fluctuations affect our decision to buy property — here and abroad?
In the year since the vote for Brexit (on June 23, 2016) the value of sterling has fallen more than 15 per cent against the euro and more than 13 per cent against the US dollar, according to Caxton FX, the foreign exchange specialist. This has been good news for foreign buyers looking to purchase property in the UK.
Hamish Pound, the head of investment at IP Global, a property investment company based in Hong Kong, says: “International and expat buyers have recognised the opportunities to be had in the UK and the rate of investment has increased since the Brexit vote. Many have benefited from a currency advantage as the pound remains soft against the US dollar. However, those wanting to take full advantage of the currency fluctuation should do so sooner rather than later, as experts predict the pound will return to a stronger position towards the end of 2017.”
It is definitely a case of you win some, you lose some with currency markets. Taimur Khan, a senior analyst at Knight Frank, has calculated that sterling buyers who bought a prime property in Berlin at the end of 2015 and sold at the end of 2016 would have made a 26 per cent return, a combination of rising property prices and a favourable conversion rate from euros back to sterling. This compares with the 9 per cent a euro buyer would have realised over the same period.
Khan says in Knight Frank’s Global Currency Report 2017: “Due to the weakness of their currencies, British and Turkish property owners holding assets abroad found themselves in a strong position in the year to March 2017, with those that opted to sell [and repatriate their money] able to achieve strong returns.”
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However, over a five-year period the investors who benefited most from buying prime property in Berlin were those who bought in roubles/. They made a return of 140 per cent based on property prices and currency movements in the five years to December 2016. This compares with 135 per cent for Turkish lira buyers, 58 per cent for sterling buyers, 55 per cent for those with euros, and 26 per cent for those with US dollars.
According to Khan, sterling buyers looking for property abroad have found almost everywhere more expensive than a year ago, while for those with Russian roubles almost everywhere is cheaper. For sterling buyers it is more than 11 per cent more expensive to buy in New York, 13 per cent more in Sydney, Hong Kong and Dubai, and almost 8 per cent more expensive in Geneva than a year ago.
Mark Harvey, the head of European sales at Knight Frank, says that most buyers remain sanguine. “Currency fluctuations have been a fairly common theme since the onset of the financial crisis and the pause for reflection that buyers take — to revise their budget or restructure their loans — when the pound falls is shortening as people get used to these movements.
“They also realise that, while they might not be able to make the conditions better when they buy, they can still control their exit, and most are taking a long-term view of holding property for five to ten years. There are also other considerations, such as the low cost of borrowing, taxation and political uncertainty,” he says.
Data complied by Knight Frank shows that, while it might be 18 per cent more expensive for a Briton to buy a house in France this year than last, those who have owned a property there for five years have made a 24 per cent return, and those who have held property for ten years have made a 60 per cent return (when converting their money back to sterling).
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This might be little consolation to those wanting to buy now, but they shouldn’t be deterred, says Jelena Cvjetkovic, an associate director in Savills’ international department.
“What your money might buy you changes, but you can still go ahead; maybe you downsize a little or shift locations from high-value pockets to those that offer better value.”
There are a number of ways to mitigate the extra expense. Harvey says that buyers can hedge against currency fluctuations by taking out back-to-back loans in which they put the money into investment wrappers while paying a local bank interest on the loan to buy a property in full.
Cvjetkovic says that some British buyers and sellers have agreed to sterling transactions for European property sales rather than euros. Although, she says, of more importance than currency to most buyers are personal circumstances, general market conditions and tax.
This is reiterated by Cédric Zaidan, the business development manager at John Taylor, the estate agency. He says that increased British interest in Spain in the past year, regardless of the poor pound-to-euro exchange rate, is down to renewed confidence in the Spanish market, the good value-for-money properties on offer and, particularly in the case of the Balearic islands, the shortage of homes for sale, which means buyers may miss a chance if they wait too long.
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Brexit may have induced currency flutters, but it has also opened up opportunities, according to Pound. “Berlin is proving to be a sound destination for many investors from the UK and further overseas. This is due to its strengthened position for trade deals in a post-Brexit EU and the relatively low-cost, low-vacancy rates on offer to investors.”