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The Pound Stretches

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The Pound Stretches

After months of weakness, the pound has recently rallied against both the US dollar and the euro, a surge which is good news for property investment. This week saw the pound reach its highest level against the dollar – US$1.50 – since mid-January. The pound’s strength against the euro also soared when the exchange rate reached ₤1 to €1.16, its highest rate for six weeks.

The pound’s fortunes during 2008 went from bad to worse before culminating in its lowest levels against the dollar for 24 years in January this year. Worried by the continual bad news from the British financial sector, particularly on the banking front, investors shied away from sterling, preferring to invest in ‘safe’ currencies such as the Swiss franc and US dollar. However, the recent signs of a revival in the UK property market have led to confidence in the British currency after months of uncertainty.

Mirroring the fall and rise of sterling has been the real in Brazil. Like the pound, the real weakened against the dollar between August and December last year, only to bounce back again during this year when the real exchange rate strengthened. The real has now experienced four months of slow but steady increases.

Exchange rates are a fundamental factor in property investment and while future rates are impossible to predict with total accuracy, property experts advise careful financial planning to protect your money from sudden fluctuations. “If you’re planning to make the investment in cash – for example, with funds obtained from releasing equity from your present home, you should buy when the overseas currency is weak,” advises Barry Aldridge, Director of Obelisk Private Finance. “If, on the other hand, the overseas currency is strong, it’s more profitable to buy with a mortgage and when the overseas currency weakens, transfer cash to pay off the mortgage,” says Barry.

Barry also advises looking into fixing your exchange rate in advance, which can be done for up to two years prior to the investment. For those buying Brazilian real for property investment, Moneycorp recommends fixing a price for half the investment funds and then using a stop order to protect the balance against unexpected falls. However, if price certainty is essential for the investors, Moneycorp believes fixing the entire investment amount.

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