by Mark Johnston
There seems to be a huge number of expats being forced to sell up their holiday homes, or second homes, and move back to the UK thanks to the slow down in the sterling and the rise in mortgage rates.
With the first rate rise in Europe since July 2008 just announced, the Euro has strengthened against the pound and the more than 300,000 second home owners (with Euro denominations) are feeling the pinch.
With increased European rates announced recently and the weaker than expected inflation in the UK, a rate hike within the next few months is looking more and more likely. And when the rate hike does kick in, the UK nationals with a second home within the Euro zone will be hit twice as hard. Further to the rate increases over the channel and at home is the weakening confidence in the pound. During the middle of April, if you changed £100 you would receive €112 where as the month before you would have received €115 and in January you would have had €119. The decline in the currency means that owning a second home, within Europe, is increasingly becoming not cost effective.
Market experts have reported seeing a 40 per cent rise in the number of people who are repatriating their cash back to the UK and cutting their losses during the fist quarter of 2011 compared to the last quarter of 2010.
The European Central Bank (ECB) expects that rate will rise again in September, an expectation leading to concern when weighed up with the weakened pound. Adam Jordan, currency expert at MoneyCorp said “The markets are expecting a rate increase in the UK in October, but this is more uncertain because we haven’t seen the Bank of England response to this week’s inflation figures,” Mr. Jordan said. “It’s possible that the gap between interest rates in the UK and abroad could widen further.” He went on to comment that the crash in Spain had lead to some difficulties for some in selling their homes.
Figures show that the average increase in mortgage repayments will be £1,750 a year after the rate rise. Experts have commented that there have been an increase in th number of homeowners applying for a re-mortgages in order to pay off their second homes.
Director of Smart Currency Exchange has given straight advice to homeowners and warned that rate rises will come and that sharp increases in mortgage payments will need to be made. “If they have a large mortgage, the liability will have gone up in sterling terms,” he said. “They need to realise that the size of their mortgage has effectively increased, and there is inflation in Europe, too, so that makes it even worse. People who are buying abroad now are more worldly wise than they were a few years ago, but I am telling them that they need to budget for €1.10 to the pound rather than €1.20 or €1.30.”
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