Economic uncertainty in the eurozone is leading to expat Brits selling the Euro and properties in Spain which has gone back into recession, according to currency specialists.
HiFX reports a 175% increase of volume in Euro sales, 34% of Brits looking to sell their property in Spain and a 69% increase in the number of buyers hedging their currency purchase.
‘This movement has occurred in spite of Sterling’s performance against the Euro over the past 12 months, which on the surface may seem unusual. Normally when Sterling strengthens against the Euro, we’d expect to see a raft of Euro buyers. But at the moment everything is counter intuitive, so despite the recent movement from 1.16 to 1.22 it’s all euro sellers. Fear is most definitely driving these transactions,’ said Mark Bodega, director at HiFX.
Despite last week’s poor UK GDP figures, Sterling quickly recovered ground against the Euro showing just how unwanted the Euro really is. Growing numbers of Brits believe that the Euro is overvalued and that further drops against Sterling are on the cards as a number of eurozone countries are beginning to baulk at drastic belt tightening measures.
Also the International Monetary Fund (IMF) appears to be casting doubt on the viability of the eurozone’s austerity drive, a strategy Germany has pushed for as key to fighting the crisis. There are also concerns about the affect if socialist presidential candidate Francois Hollande wins the French general election.
Many Brits with accounts overseas are opting to move their savings and working capital back into Sterling and back into the more familiar and trusted UK banks.
‘Brits are worried that if the situation in Europe gets worse, the value of their Euro holdings will plummet and in the worst case scenario the Bank will collapse and they will lose everything,’ added Bodega.
Since January 2011, UK savers have £85,000 worth of protection per person, per firm in accordance with an European Union directive. The new EU laws have also enforced a standard compensation limit across Europe at €100,000.
‘It is therefore best to spread your savings over as many savings institutions as possible, never holding more than £85,000 in each. If you are one of the many people concerned, you could consider limiting your exposure to the Euro by bringing some of the funds held in Euro bank accounts back to the UK. Alternatively if your funds are in the UK, and you’re used to sending one larger amount each year to a Euro bank account to cover the costs of a property or life abroad, you might want to consider sending smaller amounts to the eurozone more frequently to allow you to take advantage of future Euro weakness,’ explained Bodega.
As many European governments tackle their deficits, second home owners especially those based overseas have become easy targets for tax increases and as a result many are selling up and returning their assets to the UK.
Recent research from HiFX found that one in 10 Brits who own a property abroad are looking to sell, and 34% are trying to shift a property in Spain where house prices are down 25% since their peak in 2007.
Many Brits already in the process of selling a property overseas can’t afford to see the value of the Euro fall further and are using a forward contract to lock in the exchange rate on the proceeds of the sale in case the Euro depreciates further which many analysts believe is likely.
‘Due to the current uncertainty in the financial markets, most of our clients are playing it safe and we have seen a 69% increase in the number of buyers hedging their currency purchase through the use of one of more forward contracts. In essence, this means that you can buy the currency now, and pay for it later. If the exchange rate moves at all in that period this will not affect you at all, as you have bought currency at the originally agreed rate,’ Bodega pointed out.
‘This movement is not surprising particularly as Sterling performed strongly in the month of April, reaching multi-month highs in part due to the stable picture here with no elections due and austerity measures announced and being implemented. However last week’s disappointing GDP figures will potentially limit the upside for Sterling now until we see growth return to the UK as the Bank of England could kick start the printing presses again anytime to try and support the economy,’ he added.