Latest Euro Rate Rise will Hurt Overseas Homeowners

March 23rd, 2007

Currency specialists believe the latest interest rate hike by the European Central Bank to 3.75% will negatively impact homebuyers with overseas mortgages.

Amid fears of inflation Eurozone rates have risen to a five-and-a-half year high, from 3.5%. Nick Bull, marketing manager of Moneycorp, told OPP the move was widely expected by the markets, saying: “While European interest rates remain lower than in the UK, the cost of servicing a Euro mortgage from the UK (or paying cash for a property) has increased significantly. On this side of the Channel, many believe that UK interest rates are at or near their peak and therefore Sterling has suffered, losing almost 4% of its value from over 1.52 Euros to the Pound to 1.46.”

Mark O’Sullivan, head of trading at Currencies Direct, said: “It’s likely that over the next few months we will see property prices in Europe continue to rise overall but at a much slower rate than previously. There will be some areas though where we may see a decline in prices as the ECB’s rate increases hit the pockets of buyers.”

Global Insight’s chief UK and European economist Howard Archer told the BBC:
“The ECB is clearly retaining a tightening bias in its monetary policy stance following the rate hike.”

The ECB’s decision came shortly after the Bank of England announced it was keeping UK interest rates on hold at 5.25%. Some analysts believe Europe’s key interest rate could hit 4% before the end of the year.

Story from OPP(subscription required)


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