Overseas property owners with euro-denominated mortgages are struggling with the effects of the first European interest rate rise since July 2008. Mortgage rates are starting to rise in Europe and the currency looks increasingly overvalued against the pound and the dollar.

The euro has strengthened since the rate hike was announced, and the weakening pound has led to many UK holiday home owners repatriating large sums of money to the UK from the Eurozone, with some currency exchange firms reporting a 40% increase in the first quarter of 2011 compared to Q1 2010.

Recent figures reported by Smart Currency Exchange showed that the average increase in European mortgage repayments after the ECB rate rise will amount to £1,750 a year. This is expected to continue as the European Central Bank (ECB) is expected to increase interest rates again in September of this year, possibly to 1.75%.

To make matters worse for homeowners in the Eurozone, the banks there are expected to tighten credit standards for households in the second quarter of the year, continuing the trend of the first quarter, according to the European Central Bank’s Bank Lending Survey.