Newspaper article The Evening Standard (London, England)

The New Eurocrats; Money: Should You Buy Now While the Euro Is Weak or Wait until the UK Joins the Single Currency? Lorna Bourke Investigates

Newspaper article The Evening Standard (London, England)

The New Eurocrats; Money: Should You Buy Now While the Euro Is Weak or Wait until the UK Joins the Single Currency? Lorna Bourke Investigates

Article excerpt

Byline: LORNA BOURKE

THE sun is shining, the euro is around 15 per cent below its launch level of 26 months ago and it's the time of year we start daydreaming about buying properties on the Continent while it is still cheap to do so.

"There has been a definite increase in interest because of the weakness of the euro," reports Maurice Lazarus of Domus Abroad, which specialises in French properties. "A lot of people are selling a property in the UK for, say, [pound]400,000, buying something similar in France for [pound]150,000-[pound]200,000 and investing the balance to provide income."

But should you buy now while the euro is weak or wait until the UK joins the single currency?

The value of the euro on launch was 72p and has since fallen to around 63p. The experts agree that in the short term the euro will strengthen against sterling but longer term it is likely to remain weak.

"I don't think people think about buying abroad in the context of the currency," says Lazarus. "It is simply a question of what currency they borrow in - if they need to borrow. Mortgages are much cheaper in France, where you can borrow at around five per cent, but a lot of people are buying for cash."

However, it is worth bearing in mind that if you had borrowed in euros when the currency was launched in January 1999, your debt would now have shrunk by 15 per cent. But the big question is: what will happen if and when the UK joins the common currency?"

"It depends whether we go into the euro and at what exchange rate," explains Ray Boulger of mortgage broker Charcol. "I think there is a good chance we won't join. The level at which we go in is clearly relevant if we do join but the market is rather better at judging the correct rate for sterling compared with the euro.

Governments do not have a good track record on deciding what the rate should be."

"The problem is the euro's weakness, rather than the strength of sterling, as we can see from the pound/dollar exchange rate, which has fallen. But if all the eastern European countries join the EU, I can only see the euro remaining weak," says Boulger.

In this situation it would clearly pay to borrow in euros, but potential buyers should be aware that if you do so and sterling weakens, rather than strengthens, against the currency, you will end up owing more in pound terms than you borrowed.

For example, if you had borrowed E100,000 in January 1999 when the euro/pound exchange rate stood at around 72p, your exposure would have been [pound]72,000.

Today you would owe E100,000 at around 63p to the euro or just [pound]63,000. If things had gone the other way, however, and sterling had fallen against the euro to, say, 90p to the euro, you would now owe [pound]90,000. This is a risk some buyers might prefer to avoid. …

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