Sterling £££

Capo Boi Image
02/13/2010 - 13:18


  Still having to reply to my own post here..... It may not be obvious but sterling is actually lower since the start of the year despite moving up from €1.1255 year end 2009 to €1.1476 yesterday. What in fact has happened is that the euro has fallen by nearly 3.75% against a basket of major currencies as worries that budget pressures in Greece and also to some extent Portugal, Spain and Italy put pressure on the currency. On an effective basis (measured against a basket of currencies of the UK's main trading partners) sterling is 0.32% lower since year end. This is the main measure that the Bank of England and other central banks look at. The dollar by comparison is 1.26% higher. So what does this mean in reality? Well I don't have a crystal ball but these are my thoughts. (1) Unless there is a perception that the UK can bring its budget deficit under control, sterling is likely to remain weak. (2) Similarly, unless the EU provides more concrete support for Greece, the euro could remain weak. As I posted sometime ago, most people on here who own a house in Italy have been net winners from the euro's strength. (house price appreciation in sterling terms has more than outweighed the higher sterling cost of living in Italy). If (and I don't believe this will happen) Greece were to pull out of the euro and revert back to the dhrachma then it would be at a rate of exchange maybe 30% lower. Follow on to Italy pulling out of the euro and returning to the lire then the same would apply. For people who own a house here, an immediate 30% drop in its value in sterling terms. For people looking to buy, 30% cheaper prices. As with many things there are winners and losers but speaking out of pure self interest, I hope the EU can come to Greece's rescue.

... a missing factor is the pending general election in the UK... If one of the parties has a clear win in you could find stirling rallies for a while. If it were not for the pending election, stirling would be much higer than the 1.1539 it stands at today.....

 It is an interesting (and valid) point which you make Capo Boi. A couple of observations - you discuss the calculation of 'appreciation in house prices in Sterling terms' with the 'Sterling cost of living in Italy'. This  is a bit like comparing national debt (as a proportion of GDP) with the current account deficit - something national politicians never do! You (IMO reasonably) take it for granted that Greece will not revert to the Drachma, and it is even more fanciful (IMO) to think that Italy would revert to the Lira. Only people who need analysis entertain the idea that the Eurozone would admit the UK at current exchange rate levels. I have a notion that you are in some way involved in the estate agency sector - I intend no offence, that is my field as well.  In 'the old days' clients looking for an Italian property (whether as a main residence or as a holiday home) were using 'spare money'. It was no more than six years ago that I was scared to death when I realised a UK client was using borrowed money to enter a market which he absolutely did not understand. I'm a little concerned that you (appear to me) to be using relatively sophisticated financial arguments to encourage people to 'invest in' real estate in Italy. Anybody who buys into your scenario has a good chance of being disappointed: better to seek clients who do not use Excel - they will enjoy even their mistakes, and won't try to sue you!

 Hello Fillide, I'm not encouraging anyone at all to buy property in Italy. I'm not an estate agent and never have been. I do help out from time to time (mainly on translation matters) with local builders and agents who are friends of mine but I have never taken a single euro in compensation nor would I ever desire to do paid for any help that I can give. The point that I was trying to make is that currency fluctuations can have an enormous impact on one's financial wellbeing if you consider sterling as your "base" currency. The euro has pretty much been on an upward path since its introduction. Anyone buying a property back then would have seen a very big rise in the value of their property in sterling terms. Not because property prices in Italy have gone up (they have a bit) but mainly because of the strength of the euro. Likewise, anyone on a fixed sterling income, renting throughout this period, will have seen a big fall in their disposable income. Many people complain about how expensive Italy has become in the past few years without looking at the other side of the equation ie their property is an euro asset which has appreciated significantly against sterling.

 I can see the view from both sides and I tend to take the view ' do one's own research' AND include a 'feelgood' factoring. (or possibly a feel 'bad' factor!) Having bought (because we wanted to 'escape' the crazy world that is England) in Italy a few years ago, I don't really care on the value of my property really. We are REALLY enjoying life here and our feelgood factor is VERY high. I wish there was a 'thank you' button again!! S

 Actually, I don't understand why Italy has been included on the list or even mentioned, as the group of "PIGS" is made of Portugal, Ireland, Greece and Spain. The public deficit as a percentage of the PIB is -11.6 for Ireland, -10.3 for Spain, -9 for France (Mon Dieu!!!!!), -8.7 for Greece and -8.3 for Portugal. Italy only appears to have -5.6, next to Germany with -5.6 All this appears in the data published by the prestigious Spanish newspaper ABC in today's edition. I really don't think that Italy will revert to the Lira. Actually, I think that the Euro will maintain its position. Perhaps the US Dollar will gain some points against the Euro as it is currently doing.

In reply to by Gala Placidia

It's simplistic to think Gov Debt in itself is the only problem here, but rather, ongoing lack of competitiveness and sustainability. After a long honeymoon the Eurozone is now confronting the demons and issues that the contrarian economists were warning all those years ago. How do completely disparate economies and cultures cope and thrive without the flexibility to determine their own interest rate and devaluation? This will be the opportunity the federalists have been waiting for to push for further integration, but persuading the German population in particular to bail out Greece with its bloated public sector and retirement age 5 yrs lower than its own, plus 30% youth unemployment and enormous black economy,  will be interesting to see.......  We have had one house for sale in Italy for 3 yrs. So agree with sentiment above.  The price is not only what someone is willing to pay but also what someone is willing to lend!  

The UK press are now referring to "PIIGS" hence including Italy . Italy is still in recession at the moment. As regards being "quids in" if you own a house in italy  that's all very well if you can actually sell your house. In reality your house is only worth what someone else will pay for it. Just as well we bought for the "feel good' factor!

" ............ the group of "PIGS" is made of Portugal, Ireland, Greece and Spain. ..........."   Lets hope they don't get similar problems in Croatia, Rumania, Austria and Poland

As a well respected thinker once said "The world is an infinitely complex place". There is no chance of being able to forecast forex rates in the medium to long term. All you can do is to follow your current beliefs and plan for the downside. It is  also especially interesting to note that years ago no-one was talking about bying a property anticipating making a gain through the Euro. Count the many "self" congratulatory articles about it now though.

I think Capo Boi makes some interesting points but "house price appreciation in sterling terms has more than outweighed the higher sterling cost of living in Italy" is only true if you think you will ever take your money back to the UK. For the many people like me who recieve their income in sterling and have no intention of returning to the UK, things have got a lot tougher due to the rise in the Euro (or is it the fall in the pound?) and this is definitely not offset by any house price appreciation in sterling terms. Fingers crossed for the heady days of 1.45!!

 Penny, I think we are on the same wavelength and I have no argument with what you say.  All I was trying to do was bring home the effect of exchange rate movements on one's "financial" well being. (not quality of life or anything else). If you are dependent on a sterling income to finance euro expenditure then you have a currency mismatch which can either work in your favour or alternatively against you. Likewise you can borrow more (or less) in sterling against an euro asset that has increased (decreased) in price. As I said, I have no crystal ball but sterling at 0.90 to the euro seems to me as entirely feasible as a rate of 1.45. I'm not for a moment suggesting that either event will happen but what if one of these does?

  You are absolutely right, it is too high for the market we have had, but it's been such an extraordinary period that it was very difficult to know whether the market was going to adjust back to 2007, both in terms of purchaser numbers, (which dropped off a cliff ) confidence and most importantly - for those of us in areas where the English have been the mainstay of the farmhouse market - until the Sterling exchange rate improves. Difficult to see how this particular section of the market, is going to change that much in the near future. There is certainly hundreds of lovely houses just languishing on the market. I think im right in saying property in Italy is the second highest in the world when compared to wages and until inflation erodes the debt mountain and wages, pensions and savings close the gap its going to be a long drawn out affair, probably several years, for the market to thrive and transaction numbers to increase.  

Glad to see that property prices might be making a comeback!-(ANSA) February 16 - A neoclassical tomb in Rome's monumental Verano cemetery fetched the price of a super luxury apartment in the city's first Web auction of otherworldly assets. The tomb, described as "classical style with decorative elements in white travertine and Carrara marble, able to house ten," drew a flood of buyers to the site, boosting its value from an asking price of 150,000 euros ($206,000) to a winning bid of 940,000 euros ($1.3 million).