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Buying a property abroad and facing the prospect of a weakening pound


Most British residents buying a property abroad will be shocked at the weakness of the pound against pretty much every popular currency, making their investment look expensive when compared with historical prices. Since June 2016, the pound has dropped 17% of its value against the dollar and almost 12% against the Euro.

Buying a property abroad this year will be much more expensive than it has been historically.

The Pound might not have finished  its dramatic losses just yet, either. The triggering of Article 50 towards the end of this month will provide GBP with 24 months of uncertainty as the UK government plots a course through the murky and unknown waters of Brexit.

Then there’s the question of a Scottish referendum. 

With both sides pushing their own agenda, it’s not clear at this stage whether Theresa May will bow to the pressure that Nicola Sturgeon and her SNP army are applying. The noises coming out of Downing Street are that the UK government won’t open a debate about devolution until Brexit negotiations have been finalised. But, we’ve all been here before and politicians have a habit of performing u-turns. What is clear, however, is that any further political unrest during the period of Brexit will add a further significant layer of uncertainty for the Pound to deal with.

Of course, things aren’t exactly rosy on the other side of the pond either. Donald Trump is doing his very best to keep us all on our toes and, I suspect, would prefer to see a weaker Dollar to aid his protectionist agenda. In Europe of course, we have the French elections coming up and a win for Marine Le Pen and her far right party could well put the cat amongst the pigeons – with a French exit from the European Union then a real possibility.  All of this on top of a mountain of debt from countries like Greece, Italy, Spain and Portugal providing the backdrop for a potential headache for the Euro in 2017 and beyond.

So where does this leave Brits buying property abroad?

Well, in short, it’s a pretty uncertain position right now. The way I see it, there are  a couple of options available.

The first is to do nothing and ride the volatility. The exchange rate may be favourable when the time comes to convert those pounds, but then again, it may not. If you can afford to spend more on your holiday home than originally planned, then it’s certainly the easiest option.

For those who are a little smarter, it’s worth spending a little bit of time on option two. Rather than leaving May, Sturgeon, Trump, Merkel et al to determine how much your property will cost, you can take matters in to your own hands by hedging against any likely scenario now.

Now there are a couple of options available to you depending on your appetite for risk and your knowledge of which direction the currencies will move – in your favour or against it. Contracts for Difference and Spread betting are not for the faint-hearted but they will offer you exposure to the currency pairs that you’ll be looking to exchange. For a UK or Ireland resident, spread betting offers tax free profits so, any money you make on the trade will be available to use to invest elsewhere.

Bear in mind though, that there is considerable risk with this approach. As leveraged products, CFDs and spread betting can offer some pretty attractive profits. However, losses can be much larger than the value of the currency exchange drop, so do ensure you understand the risks before entering this kind of trade.

Exchange Traded Funds are your other option. Easily accessible, you can trade them like you would trade a company stock so all good stockbrokers will provide you with access. And the best bit for UK residents is that purchasing an ETF through a stocks and shares ISA account means that any profits you make are completely tax free. Of course, if the pound strengthens against, say, the Euro, there is a downside. The value of your investment will go down. But it’s worth considering the upshot of that scenario –  your purchase will also be cheaper.

I hope that gives you some food for thought – good luck with your purchase!

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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