Tips for buying abroad in an uncertain market

12 November 2017 - Sunday Times

Sterling is bobbing around in uncharted waters, with even exchange-rate experts unable to predict how the pound will fare against other currencies. It’s no surprise, then, that anyone thinking of buying an overseas bolthole is feeling a little, well, adrift.

Earlier this month, news that the Bank of England was raising interest rates — usually a trigger for a stronger pound — caused the UK currency to fall back against the euro and the dollar. According to Laith Khalaf, senior analyst at the financial adviser Hargreaves Lansdown, the decline was partly due to the Bank indicating that rates are unlikely to rise again soon.

“In theory, an interest-rate hike should be positive for the pound and negative for government bonds,” he says. “But the pound fell while government bonds rallied, ripping up the rulebook.”

All this spells bad news for overseas investors, as the value of the pound has a huge impact on how much you pay for a property abroad — and the continuing Brexit talks mean sterling is likely to remain volatile.

“A positive resolution to some of the big Brexit issues could see sterling rise, but prolonged uncertainty or a negative outcome could see it fall back,” Khalaf says.

You don’t have to be a slave to currency fluctuations, though. Here’s our guide to navigating your way through the market.

What’s the outlook?

Weak it may be, but the pound is far from the only currency being lashed by political and economic uncertainty. The euro had its worst week of the year last month, losing 1.6% against the dollar in the wake of the Catalan independence vote.

Despite all the fears over Brexit, the pound has gained almost 6% against the dollar and held its ground against a range of other currencies in 2017. In Iceland — which topped Knight Frank estate agency’s latest global house-price index, with annual growth of 23.2% — £1 hit 139 krona last week, up from 137 a year earlier.

Most of the big banks believe the pound will strengthen against the euro by the end of 2018. It could be a bumpy ride, though. The French bank BNP Paribas expects sterling to weaken to €1.09 by March 2018 before climbing back to €1.14 by the end of the year, and the financial services giant Nomura believes that £1 may drop to €1.11 before things start to improve.

Where to buy?

Even though British buyers are taking a hit on currency, falling prices, especially on the Continent, could more than make up for it.

Property values in Italy have been declining for the past eight years and are now as much as 30% lower than at their peak in 2008. Buyers are cottoning on, and sales volumes have risen by 33% since 2013, according to Savills estate agency especially if you can find a property with a terrace or a view.

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