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The value of sterling against the euro has continued to fall at the beginning of 2008 and for anyone who has been waiting for an improvement in the exchange rate it has been a very disappointing time. If you have been intending to buy a property in Europe this year then it has just become more expensive. One year ago a pound would have bought you 1.48 euro; today that pound only gets you 1.32 euro. What does this mean in property terms? A property selling for euro 350,000 a year ago would have cost £236,000; today that same property would cost £264,000 and that's not taking into account any increase in European property values over the last 12 months.
The question is, why? Very simply, it is down to interest rates since this is the main driver of Sterling value at present. UK house prices are starting to slow which is what the Bank of England looked to achieve by increasing the cost of borrowing however the government are also mindful on how this affects the economy and there are strong indicators now that rates may have to reduce.
So how should potential investors in euro property proceed. If you feel the value of the euro will increase further then it may be prudent to purchase a certain amount of euros now to hedge against any further increases. However as it is possible there could be a reduction in the UK interest rate and if the euro subsequently fell in value it would be wise not to have all your funds tied up in euros.
On the plus side anyone who invested in euro property over the last few years would have seen the value of their asset grow reflecting the value of the euro plus any inflationary growth. Fine if you intend to sell on to a purchaser from the eurozone but if the euro continues to grow against sterling then the number of British players in the market could reduce.
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