Guest Post by Peter Lavelle
If you’re thinking of buying a property in Valencia in 2016, you may be aware that one of the things that most affects the price you pay is the exchange rate. After all, if the pound strengthens versus the euro, this significantly cuts the cost of buying Valencia property, as it means you receive thousands of euros extra when you transfer money to Spain.
With this in mind, is there a chance that sterling will strengthen against the common currency in 2016? Well, let’s take a look, as well as how this could benefit you when you buy your property in Valencia.
1. The most likely outlook for 2016 is that the pound to euro exchange rate rises, as the UK votes to Remain in the European Union.
According to the latest poll by OBR and The Telegraph, 53% of Brits intend to vote for the UK to Remain in the EU, on the referendum to be held on June 23rd, while just 41% plan to vote Leave. This would lift sterling, because it would remove the biggest cloud currently hanging over the UK’s economic outlook, and in turn lend you a helping hand when you buy your Valencia property.
For example, were the pound to jump from its current 1.26 back to 1.43, where it was before David Cameron announced the referendum date, a £250,000 transfer to Spain would get you €42,500 extra. Quite a boost!
2. Sterling may also fly higher versus the common currency this year, if the Eurozone debt crisis reignites.
According to the European Central Bank’s bi-annual survey of 141 banks, 81% have become less profitable since the ECB implemented its emergency monetary stimulus. This is to say, the ECB’s own stimulus to lift the Eurozone’s economy is actually hurting the currency bloc’s banking sector. If this escalates, it could drag down the euro, which in turn would make Valencia property less costly.
3. The pound may weaken versus the euro, if the UK shockingly votes to leave the EU, in the upcoming referendum.
Of course, there’s always the possibility that the polls could be wrong, and UK voters could favour Brexit on June 23rd. This is possible, because according to electoral strategist Sir Lyndon Crosby, Leave voters are more motivated. Were this to happen, the pound could tumble, because according to virtually every economic analysis available, leaving the EU would damage the UK economy.
With this in mind, to protect yourself against exchange rate volatility when you buy a Valencia property, you could set up a forward contract. This fixes the exchange rate where it is, meaning that were sterling to fall either before or after the referendum, you’d be protected. You’d be able to transfer money to Spain to buy your Valencia property at the exchange rate you’d locked in.
With all this in mind, you’re now in the best position to make the most of the exchange rate when you buy a Valencia property in 2016!