Currency watching indicates bullish exit and income strategies

Ken Thorkildsen, Director of Obelisk Private Finance, reports on how the strength of the Euro provides European property owners with big profits.

"Economic factors, such as the credit crunch, have a huge impact on currency and financial markets in general. Yet despite the current economic climate, the Euro goes from strength to strength against the pound, whilst financial forecasts indicate that the pound is likely to remain deflated until a renewed confidence in the financial stability of the UK market.

So what does this mean for current property owners?

Overseas property investors, who entered the emerging European markets early, will find that the strong local currency will have a good impact on their overall profits, with very little impact on those using rental incomes to meet their mortgage repayments.

However, property does not sell instantly and short-term gains may actually equate to missed opportunities in the form of capital appreciation. If you also take into account the original purchase price, bearing in mind that the pound was probably a lot stronger at time of sale, there is no need to panic sell just to make a quick profit.   

When repatriating money back to the UK, needless to say, your Euros are going to buy more Pounds. Therefore, choosing to enter a resale market or renting out your property when a local currency is buoyant against your home currency further increases the net worth of repatriated funds.

Mortgages and borrowing in the Eurozone can also be very profitable. The 6-month Euribor at the beginning of the year was 4.7% but now stands at 4.8%, an increase of just 0.117%.

On a €50,000 mortgage, this may mean an increase of less than €10 per month. So it is fair to say that the strong Euro provides a profitable advantage for property owners in Euro currency countries in comparison to interest rates in the UK.

As the buying power of the Euro decreases against the pound, pensioners or those living in the Eurozone may indeed feel the pinch when drawing their pension or other forms of income originating from the UK. However, repatriating rental income will buy more UK pounds.

Assistance in negotiating currency markets can help make a transaction profitable and cost effective. A currency can be bought at today's rate and fixed for up to 2 years, minimising the exposure to fluctuations in currency markets. 

In my opinion, property is a medium to long-term investment and should be viewed and approached in this manner. However, as a qualified Financial Adviser, I always consider individual circumstances to ensure a profitable performing portfolio."