Keeping a cool head in the lockdown
The major economies are in reverse, stock markets are spooked, property markets have ground to a virtual stand-still and none of us can move anywhere. Most international property-buyers have little choice but to keep their hands firmly in their pockets until the lockdowns end. But that doesn’t mean you need to be inactive.
One thing is for certain; the situation won’t last forever. Some sense of normality will resume in the next couple of months, even if we might have to take a summer off from Glyndebourne and Royal Ascot.
When confidence does come back and we can go and look at property again, there may have been shifts in both the economic landscape and property markets. Moreover, these changes may not be disadvantageous. In addition, our own financial situations may need re-evaluating, especially for those who have diverse, multi-asset portfolios. Here are some considerations for anyone returning to the market post-Coronavirus, but worth touching on now.
Two cuts by the Bank of England in March mean interest rates are now the lowest they’ve ever been in the Bank’s 325-year history. The first reduction knocked rates down to 0.25 per cent from 0.75 per cent, while the second just a week later brought them down to a historic 0.1 per cent. Both were necessary to reduce the impact of the Coronavirus on financial markets and make borrowing cheaper for UK businesses and households, said the Bank.
For home-buyers and many existing owners, this should translate into cheaper mortgages, including those targeting prime central London, which are likely to remain available for the mid to long-term. This not only makes bricks and mortar suddenly attractive for investors, either as an occupier or a landlord. But also, because low interest rates mean cash returns are virtually zero, or less if the effects of inflation are taken into account, anyone looking for income may be drawn back to residential property.
Cheap mortgages continue to be on offer abroad too, presenting attractive finance solutions for buyers in desirable destinations from New York to Paris, or the French Alps to Portugal’s Algarve.
Rates in Europe are especially low, thanks to the European Central Bank’s Euribor, to which most European banks peg their mortage rates, remaining in negative territory. Meanwhile, the negligible – and sometimes non-existent – redemption penalties offered by overseas lenders make buying with a mortgage especially appealing when Sterling is weak against the euro and dollar, as it is now.
Reducing your exposure to today’s poor exchange rate gives you the option of redeeming part or all of your foreign loan once Sterling strengthens sometime in the future. Use an overseas mortgage broker and currency specialist Smart Currency Exchange to ensure seamless transactions.
The first three months of 2020 alone have highlighted the volatility of exchange rates and how exposed international buyers could be to them.
Already affected by the economic pressure of Brexit, Sterling was dealt another momentary blow towards the end of March when the severity of Coronavirus set in and the Government announced an expensive stimulus package. It hit its lowest level against the euro (£1/€1.05) since the depth of the financial crisis 11 years ago, while against the US dollar it hit a staggering 30-year low (£1/$1.15). Sterling has since recovered, but this is more likely to be on account of weak financial data from outside the UK than any signs of positive domestic recovery.
As governments around the world prop up their fragile economies with various levels of fiscal support and uncertainty remains over any long-term consequences of the pandemic, judging currency movements over the next few months is a brave man’s game.
Whichever currency – or currencies – your assets are in right now, keeping a watchful eye on exchange rates and being ready to take action would be a wise move. Again, speak to Smart Currency Exchange for guidance on transferring currencies.
International property markets will take a knock from Coronavirus. Most will slowly return to market values of before the crisis, say analysts, depending on the destination and local economic conditions. As with all downturns, opportunities could present themselves. This could be previously unattainable properties coming to market due to the owners making life-changing decisions, not necessarily financially driven, or the prices of new properties being reduced, due to pressure on developers caused by delays in projects.
Wherever you had in mind to buy pre-lockdown, don’t discount other options on your list that may become more favourable in the aftermath of Coronavirus.
Your personal needs
Being in lockdown is an opportune time to take stock of your lifestyle. Consider your work-life balance, how much family time you would like going forward and how satisfied you are with your overall domestic situation or home set-up. If you’re in a position to wind things down a bit or even retire completely, is it time to buy and spend time at that second (or third) home abroad – the one with the swimming pool, sea views and year-round golf, you’ve always wanted? The next few months could be the time to realise plans like these.