Winners and losers as pound plunges on the Continent - 15th December 2008

British pensioners who live on the Continent are being hit hard by the pound’s recent slide to record lows against the euro and are finding that their hard earned money is buying them less and less. And the possibility of further interest rate cuts together with the UK’s current economic outlook mean that pound’s prospects are unlikely to improve any time soon. 

The fall in sterling will also have a major impact on the number of Britons holidaying on the Continent, but this is far from the only consequence. It’s estimated that more than two million Britons own property in the eurozone, and many of them have euro-denominated mortgages. 

Simon Conn, Sales and Marketing Director at Conti Financial Services, says:
“If you’re letting out your property and receiving rent in the local currency to meet your mortgage repayments in the same currency, your ability to maintain the monthly payments won’t be affected by exchange rate fluctuations. However, if you’re making your mortgage repayments in euros out of your sterling income, your costs will increase as the pound falls, as you need more pounds to buy the amount of euros required.”

Conti suggests that homeowners can protect regular euro payments against sterling’s deterioration by locking into a rate with a specialist foreign exchange broker. 

It estimates that around 60 per cent of its clients who own property in Europe have euro-denominated mortgages. And with an increasing number now renting their properties out in order to generate additional income, they’re actually benefiting from the exchange rate as their rental income is now worth more when it’s converted back into sterling.

It also says that many borrowers are releasing equity from their holiday homes and using the currency-boosted proceeds to pay off debt back home.

Simon Conn adds: “Remortgaging offers an alternative to people who feel under pressure to sell their property abroad because of the current economic pinch. The strong euro means demand for European property has decreased, so owners are finding it more difficult to cash in their asset. 

“One solution is to remortgage their property in Europe, where interest rates tend to be lower, and use the currency-boosted proceeds to repay debt in the UK.”

Those thinking of buying a property abroad are also affected by fall in the pound, as properties will now be more expensive. However, Conti’s advice is not to panic. As prices are higher, sellers will be experiencing a decrease in demand, which means that there is scope for negotiation.