For anyone buying a ski home from abroad, the eventual price you pay is heavily dependent on the currency markets. In the current situation, the markets are even more unpredictable, 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.
The past few weeks have been particularly choppy for the currency markets. The pound against the euro, for example, has risen and fallen by almost 15%. The markets are affected by an almost-endless list of factors, ranging from big-ticket economic releases and national policies through to hearsay and rumours of a political change, or a single tweet or thumbs-up from a public figure. Here are just some of the changes over the last two months.
19th February: Investors return to Eurozone
The end of February was the euro strengthen against the pound and dollar, to the surprise of many. Although Europe and particularly Italy had already become an epicentre of the coronavirus pandemic, capital was still returning to the Eurozone. This is because the euro is what’s known as a funding currency, so investors use it to invest in other currencies. With concerns growing about the spread of the disease in the UK, enough people were selling off that there was a strong inflow of money to the eurozone.
- Price of a €1,000,000 chalet: £830,137
- Price of a €500,000 apartment: £415,068
11th March: Bank of England makes emergency rate cut
The Bank of England followed hot on the footsteps of the Federal Reserve in making an emergency rate cut to boost the economy. Base rates were cut to 0.25, returning to 2016/17 levels.
- Price of a €1,000,000 chalet: £876,723
- Price of a €500,000 apartment: £438,361
19th March: Bank of England cuts rates to historic low
By late March, growing concerns over the impact of coronavirus on the UK economy led the Bank of England to make a second emergency rate cut to all-time low in its 325-year history, reaching 0.1%. This prompted a sell-off from investors heading to other currencies, and saw the pound drop to an over-ten-year low against the euro. In just a month, the cost of a €1,000,000 ski home changed by £110,000.
- Price of a €1,000,000 chalet: £942,702
- Price of a €500,000 apartment: £471,351
27th March: Andrew Bailey pledges further support
It was the Bank of England’s turn to make headlines again at the end of March, in a good example of how even a small statement can make the markets move. New Governor, Andrew Bailey, said that, following the earlier rate cut, he would be willing to look at further support to boost the economy. Meanwhile, the European Central Bank refined its growth forecasts down to 0.8%, both of which helped the pound to regain some of the ground it had lost – bringing the cost of a ski home for our hypothetical buyers back down again.
- Price of a €1,000,000 chalet: £891,551
- Price of a €500,000 apartment: £445,775
3rd April: Divisions show between Eurogroup members
By early April, the divisions between key European Union member states over proposals for a coronavirus economic rescue package had spilled over into the public sphere. The so-called ‘Frugal Four’ of the Netherlands, Germany, Finland and Austria found themselves at loggerheads with Italy, France and Spain, who were proposing so-called ‘coronabonds’, or common debt instruments as a key element of any eventual scheme. The euro weakened as worries grew of a long-lasting stalemate.
- Price of a €1,000,000 chalet: £874,936
- Price of a €500,000 apartment: £437,468
9th April: EU video talks stall
The Eurogroup met again – by video – for a much publicised meeting on 9th April to attempt to break the deadlock. With public opinion behind both sides in their respective countries, however, finding compromise proved to be difficult. The eventual talks lasted over 16 hours and yet proved inconclusive – seeing euro falling further still.
- Price of a €1,000,000 chalet: £873,080
- Price of a €500,000 apartment: £436,540
21st April: Oil prices slump
It was a reversal of fortunes for the euro by the end of April, receiving an unexpected boost against the pound after oil prices slumped further than expected. Investors flocked to safe havens as crude oil prices turned negative for the first time in history, despite a Saudi-Russian deal to help keep them high.
- Price of a €1,000,000 chalet: £886,053
- Price of a €500,000 apartment: £443,026
What does this mean for your money?
The impact of market volatility on the cost of a ski home is clear to see: in just one month, between 19th February and 19th March, the cost of even just a €500,000 property in pound sterling grew by almost £60,000. The fact that part of this growth came from a completely unexpected emergency rate cut only goes to underline how unpredictable this volatility is, too.
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 in the Property Buyer’s Guide to Currency.