A large number of expats are being forced to sell up their second homes abroad and return to the UK due to the rising mortgage rates and the weakening sterling.
With the first rate increase in Europe since July 2008, the Euro has strengthened against the pound and over 300,000 second home owners with Euro-denominated mortgages have suffered.
With weaker inflation in the UK and the recent announcement of increased European rates, a rate increase within the next few months seems increasingly likely. Thus, owning a second home within Europe has become less cost-effective, with the fall of the currency.
A market analyst reported witnessing a 40 percent increase in the number of people repatriating their cash back to the UK and cutting their losses in Q1, compared to Q4 2010.
The European Central Bank (ECB) is expecting a rate increase in September, leading to concerns over the weakened pound.
“The markets are expecting a rate increase in the UK in October but this is more uncertain, because we haven’t seen the Bank of England’s response to this week’s inflation figures,” said Adam Jordan, Currency Expert at MoneyCorp.
“It’s possible that the gap between interest rates in the UK and abroad could widen further.”
Figures reveal that the average increase in mortgage repayments, after the rate increase, will be £1,750 a year.
Advising home owners, the Director of Smart Currency Exchange warned that rate increases will eventually come and that sharp rises in mortgage payments are inevitable.
“If they have a large mortgage, the liability will have gone up in sterling terms,” the Director said.
“They need to realise that the size of their mortgage has effectively increased and there is inflation in Europe, too, so that makes it even worse. People who are buying abroad now are more worldly wise than they were a few years ago but I am telling them that they need to budget for €1.10 to the pound rather than €1.20 or €1.30.”