Jun 13, 2022 / FINANCE

How could higher inflation and interest rates impact your ski property purchase?

It’s well-documented that inflation has been rising in the UK and globally. Recovery from the pandemic, the war in Ukraine and other factors have contributed to the rise.

As a result, central banks have begun to hike interest rates in order to tame high inflation. But what impact could all of this have on your ski property purchase?

When inflation and interest rates rise or fall, currencies can be impacted. Dramatic swings in the currency market can change the price of your property abroad by tens of thousands of pounds if you haven’t protected your property-buying budget. So, how could events surrounding inflation and interest rates impact the pound and the euro?

Find out how to protect your property-buying budget with Smart Currency Exchange.

What affect do interest rates and inflation have on the pound?

Inflation is now well above the Bank of England’s target of 2%. Actions and comments from Bank of England officials surrounding this have impacted the pound and could continue to do so. There are now rising expectations that the Bank of England will hike interest rates again at its next monetary policy meeting, which could provide support for sterling.

Equally, if comments from Bank of England officials are more cautious than expected, the pound could weaken, even if interest rates are raised. A similar situation occurred back in March when one official voted against an interest rate hike. The market focussed on this unexpected event and the pound weakened.

In short, it’s very difficult to predict how the pound will react to the Bank of England’s next actions to tackle rising inflation.

Renovated apartment in Chamonix Mont-Blanc

What affect do interest rates and inflation have on the euro?

Inflation is also at a record high in the eurozone, currently at 8.1%. Until recently, the European Central Bank showed no sign of taking any action to combat this, which weighed on the euro.

However, at its latest meeting, the ECB suggested an interest rate hike could be on the cards in July. If the bank does raise interest rates next month, it will be the first hike in over a decade. ECB President Christine Lagarde also suggested that an even bigger hike, of 50 basis points, could be seen in September.

Spacious alpine home at Arabba

The euro strengthened in anticipation of this, as Lagarde had previously confirmed that a rate hike would take place in July. However, due to mixed messages from Lagarde following the meeting, the euro weakened. Her ambiguous comments raised questions over borrowing costs for Eurozone countries.

Although the markets were expecting the ECB meeting to be supportive of the euro, the euro unexpectedly weakened due to Lagarde’s comments.

The impact on your ski home

In a world where economies and central banks are trying to cope with high inflation, the currency markets are volatile. This means that the price of your ski property has the potential to change dramatically, depending on where currencies move next. As the movements of currencies are impossible to predict, you’re leaving the price of your ski home to chance.

There is, however, a way to avoid this. A forward contract locks in the same exchange rate for up to a year and gives you peace of mind that your property-buying budget will be unaffected, whatever happens. Find out more here.

ski-in ski-out apartments in the Damüls Ski Area

Start looking for your ski property today

To get the process of buying your ski property underway, why not take a look at our handy ski property buying guides? They lay out the buying journey step by step to make the process as smooth and hassle-free as possible.