What would a 'Grexit' mean for euro mortgages?

As the eurozone crisis grinds on owners of holiday and retirement homes in the region are wondering what will happen if Greece exits the single currency – possibly followed not too long after by Cyprus and Spain. 

Those who need to sell their homes abroad are struggling, and buyers are reluctant to commit to a purchase with the future so uncertain.

‘There has been price cutting, but not as much as you would expect, given that properties on the coast are down as much as 40%,’ says Martin Dell of Kyero, a website specialising in Spanish properties. He points out that a lot of UK expats who want to sell cannot afford to do so at such large discounts because that would put them into negative equity – if they are not already there.  

‘But the proportion of purchases by foreign buyers, mostly Germans and French who are already within the eurozone and are not concerned about currency risk, has risen from 10% to 20%,’ Dell explains.

Prices still falling

‘Property prices have been falling for the past six months in more and more locations,’ confirms Liam Bailey of Knight Frank. He is predicting that it will be the back end of 2013 before there is any chance of property prices in the eurozone strengthening. 

The Knight Frank Global Property index shows that over the year to 31 March property prices have fallen furthest in Ireland, at 16.3%, closely followed by Greece at 9.8%. In Spain and Portugal prices are down 7.3% and 8.6% respectively, with much smaller declines in France at 3.9% and Italy at 2.3%.

Savills International tells a similar tale. ‘Sotogrande has been surprisingly active in the €600,000 to €800,000 market,’ says Charles Weston Baker, head of international residential, talking of the large Andalucian resort. Even in such a well-known golfing resort, sales are at a discount of around 20% from their peak. ‘But the middle market has been much slower.’ 

Weston Baker says the bargains are to be found among the lower-end developments, where the banks have foreclosed and are selling off properties for whatever they can get. ‘We have seen interest from the investor market looking at yields on properties in Spain in the past three to six months,’ he says. However, he reckons that sales volumes are just 20% of the levels seen at the peak of the market.

He is, however, fairly sanguine about the whole situation, pointing out that even if Greece does exit the euro and Greek property prices fall further, the euro would probably strengthen, making it even cheaper for northern Europeans to buy, which would soon push prices back up again. ‘These things are self-correcting. The market speaks for itself,’ he says.

Mark Harvey, head of the French department at Knight Frank, reckons that overall house prices in France have declined by around 30% since their peak in 2007, but there are still buyers for prime properties of €2 million plus in desirable locations such as the Cote d’Azur.

‘The market is quieter than it has been, although in the past few weeks high-end buyers have been resurfacing. But we are advising clients who want to sell that they must listen to the market and take advice. Deals are being done if the seller is prepared to listen.’ In other words, if you are prepared to cut your price enough, you can find a buyer.

Owners under pressure

For owners of holiday homes in the eurozone the problem is compounded by a general retrenchment by UK families, who are now looking to take holidays at home in the face of higher air fares from budget airlines and the closure of up to 20 regional Spanish airports.