SpanishPropertyBuyer.com

Wider UK trade deficit and falling factory gate prices dampen appetite for the pound. Stability returns to the euro as the Greek panic subsides.

Sterling spent a second week paying the bill for its post-budget honeymoon. It has now returned all the way to its position before the chancellor stood up to deliver his speech on 22 June. There was nothing dramatic about the decline and no sense of the panic that would have been typical six months or more ago. To some extent the fall was a completion of the technical head-and-shoulders formation that peaked a fortnight ago.

The UK economic data were mixed. Monday’s services sector purchasing managers’ index (PMI) fell by one point to a less-than expected 54.4. It suggested that companies were still growing their activity but at a progressively slower pace.  Wednesday’s production figures were good in parts. Although manufacturing production grew by only 0.3% in May instead of the +0.5% analysts had predicted, it was a far better result than April’s -0.8% decline. The broader industrial production figure, which includes such things as mining and energy, reversed the previous month’s decline with a +0.7% rise. The Halifax house price index went down for a second month, this time by -0.6%, leaving house prices 6.3% higher than a year earlier. 

The most disappointing data, at least as far as sterling was concerned, came on Friday with June’s producer price index (PPI) and the balance of trade for May. The input and output components of the PPI, representing manufacturers’ costs and factory gate prices, were lower in June by -0.2% and -0.3% respectively. The numbers supported the Bank of England’s projection that inflation will fall back towards its 2% target without the need for higher interest rates. The UK trade figures were also unhelpful. The deficit in goods widened to more than £8 billion while goods and services together registered a £4.5 billion shortfall. Both deficits were bigger than expected and cast renewed doubt on the alleged benefits of a weak pound.

Other events during the week saw an announcement from the new Office for Budgetary Responsibility (OBR) that its boss, Alan Budd, did not intend to renew his initial three month contract and that the two other members of the triumvirate would also be leaving before the end of the year. Critics of the new setup wondered why he was leaving.  Could it be because of lack of independence? Perhaps not, for the International Monetary Fund (IMF) came out later in the week with economic growth projections remarkably similar to those put together by the OBR. The IMF agrees with the OBR that Britain’s gross domestic product will grow by 1.2%.  Its forecast of 2.1% growth in 2011 is lower than the OBR’s 2.3% prediction.

After months of punishment as a result of the problems in Greece the euro has made a good fist of regaining some semblance of stability. There has been a correction to what commentators retrospectively describe as an ‘oversold’ condition, in much the same way that sterling recovered from its near-parity lows a year and a half ago.

The euro zone’s services PMI came in better than its British or US equivalents at 55.5, minutely higher than the previous month. Retail sales also performed better than forecast in June, rising by +0.3% instead of falling by that amount as analysts had predicted. Finalised figures for economic expansion in the first quarter of the year showed a +0.2% growth in gross domestic product (GDP), probably a tad short of the +0.3% growth that is expected to have demonstrated. Germany performed better than Britain on the industrial production front, with growth of +2.6% in May, while it demonstrated slower inflation at +0.8% in the year to June. If the Bank of England is under no pressure to raise interest rates in the War on Inflation, the European Central Bank (ECB) seems to be under no greater pressure.

Indeed, the ECB sided with the Bank of England in leaving its policy interest rate unchanged at Thursday’s meeting. President Jean-Claude Trichet expressed guarded optimism at the pace of economic growth but found no difficulty in containing his enthusiasm. Of more interest to investors was that he did not say about the ’stress tests’ that Euroland banks have recently undergone. The purpose of the tests is to examine how those banks would survive another serious economic or financial shock.  Investors are uneasy that the ’stresses’ to which the banks’ balance sheets are subjected might not in fact be real life worst-case situations. The results of the tests will come out in a couple of weeks’ time and are eagerly awaited.

That sterling spent the whole week on the slide does not bode well for it in the immediate future. With UK statistics for Gross domestic product, inflation, consumer confidence, employment and earnings all due this week there is scope for further setbacks if the numbers are not supportive.

Buyers of the euro should hedge half their requirement until sterling’s future course becomes clearer.

Credit:- Moneycorp  13 July 2010

Poor bank rates and high charges for foreign exchange transactions mean individuals need to be savvier when transferring money overseas. Research by Moneycorp reveals that Brits are potentially losing over £101m a year by not shopping around for the best deals when transferring money abroad. Furthermore, uncompetitive exchange rates and high bank charges are costing individuals a lot of money, despite a concerted effort by most to reduce their outgoings on luxury and even staple items.

David Kerns, Head of Personal Clients at Moneycorp, comments:

“While many individuals are visiting comparison websites more frequently, checking voucher code sites and consulting online consumer forums before purchasing goods in order to save money, this mindset doesn’t seem to have extended to foreign exchange. As a result, individuals are missing out on a very large sum of money they could be saving, by transferring funds overseas through a foreign exchange specialist rather than a bank. Not surprisingly, high street banks are cashing in as a result of this surprisingly apathetic approach.”

People buying or selling property overseas and people emigrating or repatriating will be particularly affected, though this issue will affect all Brits who are transferring money overseas.

People who own additional properties abroad and make regular mortgage and/or utilities payments will also be badly affected, as every transfer is open to individual transfer charges, in addition to exchange rates.

Data from the UK’s number one property website, Rightmove Overseas, reveals that the average house price in the Costa del Sol in Spain is currently €369,860.68. With a deposit of 10% (€36,986), using a high street bank rather than Moneycorp would cost an individual, on average, an extra £558 on their deposit alone.

An individual who wants to transfer a lump sum of £100,000 to an account in Europe would lose out on an average of €1,690 by using their bank for the transfer into euros.

David Kerns concludes: “Despite the UK coming out of recession recently, individuals shouldn’t be lining the pockets of their bank managers and it’s in their best interest to maximise their investments. Prior to making any overseas payments, we always advocate that people shop around to get the best rates possible.”

Credit: Moneycorp – commercial foreign exchange – www.moneycorp.com

Note:- Follow our link for more information: -

http://www.moneycorp.com/affiliates/microsite/index.cfm?agentid=10082123

From the 1^st July, 2 of the 3 categories of Spanish VAT will rise.

 16% to 18%

   7% to   8%

   4% (is to remain the same).

What does this mean for the Spanish Property market which is already struggling to survive the current climate?

It will certainly increase  the cost of buying and selling property and obtaining a mortgage in an already crippled market.

What is the government thinking?

Of course it will generate income for them but may push the market further backwards and no doubt they are hoping that prices will fall still further and generate increased interest from buyers and steady the industry but at what cost? More likely it will force more builders, promoters and agencies out of business with knock on job losses. The banks will come under further pressure and there will be many owners caught in the trap of having mortgages far greater than the value of their property causing an increase in repossessions as people struggle with their own economic crisis, losing jobs and putting more people on the bread-line.

Then there is the knock on effect for furniture and electrical companies and many other suppliers with steady drops in sales already recorded.

Buyers and Investors

No doubt there are people watching the situation with interest and for the general buyer now is the time to buy a property before the IVA increases and with so many properties available at low prices.

For the investor, they will probably sit it out and wait for rock bottom distressed sales and then pounce as the drop in price will by far outweigh the increase in purchase costs.

With the pound rising against the euro, buying a property is looking even more attractive.

Mortgages

As the banks continue to come under pressure they will negotiate on distressed properties in order to clear their overflowing books and are currently making mortgage offers which pre crisis would be unheard of.

If you have the money now is the time to buy Spanish Property.

Admin: 5 May 2010

Over the last three years, the currency story for British expatriates has all been about the Pound Sterling and its fall from grace – it lost around a third of its value against the Euro and a fifth against the US Dollar. 

This year the focus is shifting to the Euro.  Uncertainty over Greece’s financial viability, not to mention concerns over other European economies, is plaguing the single currency.  Some analysts have even queried whether it can survive.

The problems of sharing a single currency across countries with divergent political priorities and economies has been brought sharply into the spotlight, as have the difficulties of getting 16 Eurozone States to agree on a solution. 

At the end of March Eurozone leaders reached agreement on a rescue fund for Greece, if needed.  The Euro briefly strengthened as a result, but the sketchy details of the fund could not sustain the gains. 

Eurozone finance ministers then took further steps to support Greece and prop up the Euro, announcing a €30 billion loans package on 11^th April.  The IMF is also expected to offer financial aid if needed. 

At the time, Jean-Claude Juncker, head of the Eurozone group of finance ministers, said: “This is the step of clarification that markets are waiting for – it shows there is money behind this.”

The loans are available should Greece need them.  Payments would only be made if all 16 Eurozone countries agree – and countries could potentially veto it. 

The Euro hit a one-month high on the announcement, but it has dropped again since.  Following the news that Greece’s budget deficit is worse than expected, and of another credit rating downgrade for the country, the Euro continued to slide towards a one-year low against the US Dollar.

The outlook is looking very challenging for the Euro.  With 16 different nations involved, there are both political and legal restraints to fixing the single currency.  Economists warn that the Eurozone still looks divided and little has been done to address the longer-term underlying problems it is facing. 

Most British expatriates holding Sterling assets would be pleased to see a stronger Sterling and/or a weaker Euro.  The lowest currency risk option for an individual is to match assets (bank deposits, investments etc) and liabilities (day-to-day expenditure) in the same currency.  However, many British expatriates tend to retain a significant amount of assets in Sterling, including private pension arrangements, making them subject to the vagaries of currency exchange rate movements. 

It is impossible to predict future currency movements with any certainty.  However, in my opinion there is a strong possibility that the Euro could weaken further in the short to medium term while the Eurozone problems exist.  I do not subscribe to the worst case scenario of the Euro failing, or of a Member State reverting to their original currency.

As a UBS Bank article reporting on research by its economists says, “Perhaps it would have been better for a number of countries if they had never joined the Euro.  Nevertheless, the European Monetary Union is certainly not about to break up; at this stage, the costs would far exceed the benefits.”

 Uncertainty about the fate of the Euro may be around for a while.  What can you do to protect your assets?  Swapping all your Euros to Sterling or another currency is not the answer.  For a start you should have enough assets in Euros to meet your spending liabilities for a few years, and also there is no guarantee that Sterling or the US Dollar won’t fall more than the Euro.  What you need to aim for, as much as possible, is diversification and flexibility.

When it comes to your savings and investments, you could diversify them over two or three currencies.  Much depends on your individual circumstances, including whether you are likely to live in the Eurozone for the rest of your life, if there is any possibility that you will return to the UK and if you expect to leave an inheritance to heirs in the UK. 

If you invest within an insurance bond choose one which allows currency flexibility, so you can switch currencies if the need arises.  If you are waiting to invest, you could invest now in Sterling and if or when the exchange rate improves, switch some to Euros then. 

The same goes for your UK private pension funds.  If you were to, for example, transfer them into a QROPS (Qualifying Recognised Overseas Pension Scheme), this allows you to choose the currency for the underlying funds and the income.  You can usually set it up in Sterling and switch to Euros later, or, if it is in Euros, have the option to convert to Sterling at a later date if your circumstances (or the fate of the Euro) change.  However you should keep in mind the fact that, exchange rate movements may affect the value of your funds.

There are testing times ahead for the Euro.  What happens to it is out of your control, but you can usually control your choice of savings, investment and pension structures so as to give yourself currency diversification and flexibility.  Ask an experienced international wealth manager like Blevins Franks for advice.

By Bill Blevins, Managing Director, Blevins Franks

www.blevinsfranks.com 

The Centre for Economics and Business Research (CEBR) has forecast that parity between the Pound and the Euro could be reached in 2010. How the markets react to the UK’s public finances will be the main determining factor as to whether Sterling falls below the Euro.

Much depends on the forthcoming general election. The markets were betting on the Conservatives winning the election as they have indicated that they would take a positive stance on spending cuts and reducing the UK’s £178 billion budget deficit. The incumbent Labour Party had been vague about future spending cuts and argued that withdrawing Government support too quickly could be damaging to the recovery.

There has been a significant gap in the opinion polls with the Conservatives being favourites to win the next election but more recently the gap has narrowed and the outcome is less certain. The CEBR warns that if the Conservatives’ lead drops off well into the single figure zone the markets “will have kittens and probably start a Sterling sell off” thereby causing the Pound to plunge.

The CEBR’s chief executive, Douglas McWilliams, explained that “Whether the markets react to the UK’s fragile public finances before they react to the divergence of performance in the Eurozone will determine whether Sterling drops below parity with the Euro. If I had to bet, I would bet on the side of parity being broken.”

Meanwhile the ratings agencies “are looking for an excuse to downgrade the UK Government from its AAA rating,” McWilliams said. “There are far too many variables and far too much uncertainty for us to have a very firm view about what will happen. But opinion polls are volatile …and it would be unusual for there not to be at least one wild poll showing Labour doing well, even if the underlying views are different.” 

The CEBR forecast was published on 28^th December, the day after a letter was published in The Sunday Times from several leading economists attacking the Government for its “irresponsible” failure to set out a convincing plan to reduce the UK’s budget deficit. They said that there was a “heightened risk” of Britain’s sovereign debt rating being downgraded.

When the CEBR’s forecast was published the Pound was trading at around 1.10 against the Euro after hitting a record low of 1.02 a year previously.

Euro’s strength in balance

On the other hand, the exchange rate also depends on the strength of the Euro, which is under threat from fears about sovereign debt downgrades in the Eurozone.  Countries like Greece, Spain, Portugal and Italy are putting a strain on the monetary union. The major international ratings agencies have downgraded Greece’s government debt rating and Spain and Ireland could face a similar fate.

The European Commission has warned that soaring budget deficits and low growth “are feeding into significantly higher public debt levels.” Average Eurozone public debt could reach 84% of gross domestic product in 2010 and 88.2% in 2011, well above the EU’s Stability and Growth Pact’s limit of 60%.

Commentators are beginning to talk about the likelihood of EU countries being forced into economic reform. The Euro was launched eleven years ago and there are questions about how long its strength will last. The 16 Eurozone countries are joined by the common currency and monetary policy but each country sets its own fiscal policy. Yet one currency across such a varied range of economies with Germany considered as the cornerstone of the Euro doesn’t allow for flexibility according to each country’s fiscal needs.

“The Euro has also got a potential downside, because to be frank it has not worked,” McWilliams said. “When it was set up, it was assumed that economic performance between Germany and the rest of Europe would converge. This has not happened – quite the reverse ‐ and when Germany is forced to bail out much of the rest of Europe it is hard to see the Euro remaining as strong.”

No one knows with any certainty what will happen between Sterling and the Euro during 2010. Last year some economists were predicting that the Pound would pick up more than it did towards the end of 2009. Now it looks like it may fall further depending largely on the UK’s general election result and the markets’ reaction.

There is also a feeling that the Euro may be about to turn downwards brought to a head by the pressure of the economic crisis and the ability of a “one currency fits all system” to work efficiently.

What can you do?

British expatriates continue to feel the burden of a low Pound against the Euro, especially where transferring regular income such as pension payments are concerned.

If you don’t already use a currency exchange specialist to transfer money you should consider doing so, since they can offer better rates than banks and without many of the accompanying charges.  You can also fix a rate for regular payments such as payment income, to ensure you receive the same amount each month.

If you have private pension funds you may be able to set them up so you can change denomination to Euros and avoid further currency uncertainty.  The same applies for your savings and investments – if you intend to live in the Eurozone for the foreseeable future you should ideally have some assets in Euros

Whether you need to change currency now or if you are concerned about preserving your wealth it is in your interest to consult an international financial adviser and wealth management company like Blevins Franks for advice on how to get the most of exchanging your disposable income and protecting your assets for the future.

Credit:- www.blevinsfranks.com

One of the main problems with buying Spanish property is the exchange rate from Sterling to Euros and vice versa when selling and repatriating funds.

If you are buying a property abroad, emigrating, or transferring money overseas you will have to make your payment in the currency of that country. Given the sums of money involved in such a transaction and the associated additional costs, you will no doubt want to save money wherever possible. If transferring sums over a period of time you will also want to ensure that the cost of the funds does not increase due to an adverse exchange rate movement. The majority of people still approach their high street bank for their foreign currency requirements. However, a foreign exchange specialist, such as Moneycorp, is more likely to secure you a better deal.

Moneycorp has been dealing in foreign exchange since 1979, that’s over 30 years and are registered with HM Customs as an overseas money service provider.  They are full members of SWIFT and to ensure that their internal processes are of the highest standard they have held the ISO9000 Quality Assurance accreditation since 1996.They have a growing company with over 540 staff and the last financial year saw them trade over 11 billion pounds in currencies for clients and are unique in that their latest accounts are published on-line on their website for all their clients to see. They have retail, wholesale, commercial and their award winning on-line trading divisions. Moneycorp does not speculate with the funds, each client receives a live spot rate and all deals are independent.  The funds are held separately from their company funds, with Barclays and HSBC. Moneycorp has offices and dealing rooms in London and throughout the world and details can be found on their website.  Contacting Moneycorp is simple, you can call in to see them, telephone or go on-line; opening a trading account is easy.  If you have a problem just tell them and they will try to facilitate a trouble free solution.

Moneycorp will offer you the following benefits for your foreign exchange transactions:

1. The most competitive exchange rates available.

2. Fixed exchange rates for settlement in the future, protecting you from adverse currency movements and allowing you to lock into favourable exchange rates.

3. No commission charges and no receiving bank fees – guaranteed.

4. Expert and friendly guidance throughout your transactions.

5. A Regular Payment Plan for your regular overseas transfers, such as mortgage or pension payments, with convenient settlement by Direct Debit.

Follow our Moneycorp link and start saving money.

http://www.moneycorp.com/affiliates/microsite/index.cfm?agentid=10082123

When selling your Spanish property you should always know what costs you will incur and what your liabilities are. It is advisable to use a solicitor, who should ensure that your legal and tax requirements are met and that there are no debts left on a property for the buyer to inherit and that the buyers are aware of their responsibilities regarding the purchase costs and any outstanding debts, such as mortgages.  A solicitor can act for both parties but always remember that you can question actions and decisions.

When a contract of sale and purchase is drawn up, make sure you read it thoroughly and understand it’s content and implications because it is legally binding. If your solicitor suggests that a contract is not needed because the completion is going to be very quick i.e. a matter of days, that is acceptable but ask the solicitor to ensure with the buyers that you will only be paying the following costs, capital gains tax, solicitor’s fee, estate agents fee (if applicable), plus valia, IBI for the current year and if applicable a portion of the outstanding utility bills/community charge, you do not have to pay Notary fees, they should be paid by the buyer. However, on occasion the seller has found that without a contract having been signed, they go to the Notary’s office for completion and have to pay half the Notary’s fees, either that or the sale collapses.

What are the costs when selling your property:-

Solicitor’s fee.

The fees vary from 500 – 1200 euros depending on the solicitor and the amount of work to be done. It is advisable to use a solicitor as they will take the strain out of the sale and ensure your liabilities in respect of Plus Valia tax and Capital Gains Tax are met and received by the appropriate authorities. If your solicitor is making the necessary annual tax return for you in Spain, then they will finalise your tax matters too.

Agents Fee.

If applicable you must pay the agent the fee agreed when they took on the sale. Again fee’s vary but remember they have to earn a living and their fee includes IVA and they have to cover costs of advertising, phone calls, client costs and tax before they earn from the fee.

IBI (commonly known as council tax or suma tax)

This is the annual cost levied by the town hall for council services. Whoever owns the property as of 1 January in the year of sale must pay this bill, unless an alternate agreement has been made.

Utility bills. (Electricity and water).

Usually the solicitor will work out a fair assessment of these bills and apportion the costs between parties if in the middle of a current payment period.

Community Charge.

A statement of account is obtained from the Community Administrators to confirm that the fees have been paid up to-date. If they are in arrears they must be paid beforehand or at the Notary from the proceeds of sale. If say the seller has paid 6 months fees in advance and is selling in the first month, then apportionment of the 5 months already paid will be included in the final settlement.

If the property has no community of owners then this is not applicable.

Capital gains Tax.

This figure is set by the government and for non-residents it is 18% of the difference between the purchase figure on the old deed and the purchase figure on the new deed. However, if the seller is non-resident that person may be going back to their country of origin and as such a set amount is payable at the Notary. That figure is 3% of the new purchase figure on the deed e.g. if the price on the deed is 200,000 euros then the immediate Capital gains Tax is 3% of 200,000 euros – 6,000 euros. That amount is given directly to the Local Tax office, the Hacienda but your solicitor can offset certain expenses against the tax i.e. original purchase costs, sale costs & agents fees but not furniture as many think. The Hacienda may take 6 months or more to look at the sale and sometimes makes a small refund but invariably nothing comes back as often the amount paid is less than the 18% due.

If you are resident in Spain, then other factors must be considered and these are:- how long you have had the property (over 3 years, then you can defer CGT for 2 tax years and pay no CGT if you buy another property within that period), your age ( if over 65 you pay no CGT). Otherwise the tax is calculated on a scale according to the length of time you have had the property.

Plus Valia.

This is the unknown tax to many, until they sell a property. Plus Valia is paid on all properties sold in Spain. It may be anything from a few hundred euros to thousands of euros depending on how many times the property has changed hands. If the owner has had the property for a number of years then the Plus valia may be high. Every property has a catastral value ( rateable value found on your IBI bill) set by the local council and the council use a formula based on the catastral value to assess how much they think the land value has increased since the owner first bought the property. A solicitor will obtain the Plus Valia cost or you can obtain it yourself by going to the council office with your deeds and your last IBI bill and tell them the date you will be completing and they will provide you with the amount payable. The Plus valia is payable by the seller and the buyer should ensure a retention is made in this respect or it will fall to them to pay it at a later date and they may incur interest and penalties.

Mortgages.

If you have a mortgage on the property you are selling, then this can either be repaid and your solicitor will deal directly with your bank to obtain a settlement figure (including the bank’s repayment costs) or the buyer can take over the mortgage and that will save money for both parties. Either way a representative from the bank will attend at the Notary’s office to receive payment or to execute a new mortgage deed for the buyer on behalf of the bank.

These are the costs which have to be taken into account when selling a Spanish property. In effect the final settlement figure will be calculated after their deduction.

If repatriating funds, then companies like Money Corp will generally give you a better rate than the Spanish banks. On large amounts it can run into thousands of pounds, so check out the possibilities before you act.

Editor:  October 2009