Our experts predict part 2: Exchange rates
In the first of our three series, former Nice estate agency director Tristan Rutherford predicts a weak Euro through 2016
As a former director of a Nice real estate agency, I understand the knock-on effects of exchange rate fluctuations. A property that priced at €200,000 in 2005 (when exchange rates were €1.50 to the British pound) would have cost £133,300. In 2008, when £1 only brought €1.02, the same property would have cost £196,100. Ouch.
More importantly, like many Pebbles clients, I’m a Nice property owner who earns in Sterling and Dollars, then transfers Euros to meet my mortgage payments in France. This year the Pound reached an eight year high of €1.44 to the Euro. Yippee.
Such a strong Pound and Dollar (the greenback topped 1.05c to the Euro this summer) has made it cheaper for Brits and Americans to buy in France than almost ever before. Pebbles have logged a dramatically increased interest in property sales. They have even taken on extra staff to cope with demand.
Is the weak Euro trend set to continue? According to the plethora of bank predictions for 2016, the answer is a definite yes. So let’s look at the facts behind the forecasts.
To briefly explain, exchange rates rise and fall as currencies become more or less attractive for investors. Therefore higher interest rates make a currency stronger. Political instability makes a currency weaker. All straightforward.
Britain has a touch of both on the cards for 2016. On the plus side, Lloyd’s bank predicts a UK inflation rate of 1% in early 2016. The Bank of England will then raise interest rates to choke off inflation. Sterling will appreciate in tandem. On the negative side, the UK is set to run a referendum on staying the EU later in 2016. As we know, investors don’t like instability. Sterling should then weaken slightly.
In short, Sterling/Euro rates should continue on a parity of £1 to €1.40, if not more. Prediction experts at Thomson Reuters have even done a ‘poll of polls’ using all the available bank forecasts. They predict £1 to €1.45 next summer. For new British buyers, and old ones like me with Euro mortgages, that’s good news all around.
The United States promises more of the same medicine. Strong employment figures and a recent Federal Reserve interest rate rise should push the Dollar higher. Morgan Stanley predict near $1 to €1 parity for summer 2016. Barclays Bank even forecast 0.95c to €1, which will have American property buyers queuing for the new year-round Delta Flight from New York to Nice. But again, US elections in November 2016 (“did someone mention Donald Trump?”) should put a lid on a runaway Dollar.
Overall, in 2016 foreign property buyers in Nice should benefit from an enduringly weak Euro. So pour yourself a glass of rosé. This one’s on me.