For anyone buying a ski home from abroad, the eventual price you pay is heavily dependent on the currency markets. The markets are unpredictable at best, so you need to plan ahead. Find out how much prices can change with our tracking of a hypothetical €1,000,000 ski chalet and €500,000 apartment below – and learn what you can do to protect yourself against this volatility.
How are the currency markets faring?
Central banks continue to face the difficult challenge of tackling high inflation whilst protecting the economy. Meanwhile, governments are attempting to ease the impact of rising prices on households and businesses. Fighting in Ukraine still rumbles on, Europe faces a growing energy crisis, and the UK finds itself awaiting a new Prime Minister.
In short, economic uncertainty is rife, and this is reflected in the currency markets. It is, therefore, impossible to predict where the pound, euro, and other currencies will move next.
Find out how to protect your property-buying budget with Smart Currency Exchange.
January to February 2022
On January 31st of this year, the pound was worth €1.20 against the euro. Sterling was supported by expectations of an interest rate hike from the Bank of England.
At this exchange rate, the price of a €1,000,000 ski chalet would have been £833,333, whilst a €500,000 apartment would have cost you £416,666.
However, just a week later on February 7th, the GBP/EUR fell to a rate of €1.18. Sterling fell to a 6-week low following comments from both Bank of England Governor Andrew Bailey and European Central Bank President Christine Lagarde.
Whilst the change in exchange rate may seem marginal, it would have had a huge impact on the price of your property. A €1,000,000 ski chalet would now cost £847,547 – over £14,000 more than it cost just seven days ago. A €500,000 apartment would now cost £423,728, marking a £7000 increase.
May to June 2022
A similar situation occurred between May and June this year. On May 18th, the pound was worth €1.18. Strong jobs data, revealing the lowest level of unemployment in the UK for 50 years, had boosted sterling. At this exchange rate, a €1,000,000 ski chalet would cost £847,547 and a €500,000 apartment would now cost £423,728.
However, if we fast forward just 6-weeks, the picture looks very different. Quite unexpectedly, the pound fell to €1.14 on June 14th after the Bank of England’s decision to raise interest rates by 25 basis points. A rise of at least this size was ‘priced in’ and disappointed the markets compared to the US Federal Reserve’s 75 basis point hike the day before. This caused sterling to immediately weaken.
Your €1,000,000 ski chalet would now cost £877,192 – nearly £30,000 more than it cost just six weeks ago. A €500,000 apartment would now cost £438,596, marking nearly a £15,000 increase.
What does this mean for your money?
The impact of market volatility on the cost of a ski home is clear to see. Sending your money on the day and hoping for the best could see you paying thousands more than you had expected.
For many buyers, the solution, then, is what’s known as a forward contract. This means that you and your currency broker agree to a fixed exchange rate for up to twelve months, so, even if the markets drop, your money is unaffected. Find out more about how this works with Smart Currency Exchange.