Maximise exchange rate to buy French property
The French property market offers some fantastic opportunities for a shrewd investor with the right kind of currency strategy up their sleeve, says Nick Jones
With both the European and UK economies stumbling their way to recovery, you could be forgiven for thinking that the expat property market would be struggling in a similar vein. However, according to the experts, despite the fragile climate, it might very well be the right time to think about taking the plunge and picking up a bargain property in France.
The economic situation across Europe has been highly challenging for some time now. This has resulted in a lack of confidence in consumer spending, tentative growth and fluctuations in the markets. The debt problems in the eurozone are still prompting frosty economic forecasts from many commentators but there are opportunities for investment for the astute buyer. The French property market is no exception.
“We’ve seen a marked increase in the number of French property-related enquiries over the last few months,” says Elisabeth Dobson from foreign exchange company, World First.
“Clients have been coming to us to manage the currency transfer, and many have expressed concerns about the value of the euro, in particular, with the threat of a break-up obviously in their minds. However, the volume of calls clearly demonstrates that the interest is there, with people aware of the possibilities to pick up a bargain home in France at the moment.”
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Clare Nessling, director of UK-based overseas mortgage specialist Conti, agrees. She thinks that now is as good a time as any to be looking at buying a new property in France.
“The French mortgage market has remained very calm throughout the global downturn,” she explains. “This is primarily due to the French financial system having been more cautious in the past. It currently offers the widest range of finance options and best available rates in Europe for UK buyers. It is in a relatively secure situation and loan-to-value ratios are still high.”
So, with prices falling and interest rates remaining very low, there are some fantastic properties out there, providing you manage any associated risk during the purchase.
Volatility in the markets has translated into unpredictability in all the key currency pairings with the relative value of pounds, euros and others becoming almost impossible to forecast.
“One of the questions I’ve been asked repeatedly in the last year or so is why has the pound not strengthened massively against the euro in light of the well-documented crisis in the eurozone and the potential break up of the euro,” says Jeremy Cook, chief economist at World First.
“The answer is linked to how closely our own economy is tied to the problem. We may not be a member of the single currency, but our trade is so closely linked to it that sterling has been suffering peripheral damage throughout.
“That said, there have been periods where the pound has rallied against the euro, only to fall away again in a seesaw fashion. It’s been an interesting period from an economic point of view but it doesn’t present an easy situation for anyone looking to move money overseas to buy a new home.”
The problems across Europe are not likely to go away any time soon but the UK has its own economic complications to navigate and 2012 is not likely to be a steady road for the currency markets. The values of both the euro and the pound have been engaged in a tug-of-war throughout the last 12 months but this situation is far from resolved and will continue to present problems. However, this hasn’t stopped people from showing an interest.
Recent survey data from Rightmove found that people are still actively searching for property in Europe. While Spain remains the most popular foreign property destination on Rightmove, France is close on its heels. In a review of all activity in February of this year, Rightmove found that 21.72% of all online searches were for Spanish property, but a significant 17.28% were for homes in France.
On this evidence, the appetite for French property is clearly there. However, as we have seen, so is the risk of exposure to the volatile markets. As a result, anyone who is thinking of buying must consider some careful forward planning in order to manage the situation.
UK-based couple John and Gina Topper were due to complete on a property in Languedoc that cost €750,000. As rates were fluctuating they decided to hedge their risk. If they’d entered into a forward contract, the rate would have been locked in at €1.155.
“We were concerned that with the rates changing every day we might lose out on some valuable cash,” explains Gina. “Having already made a decision to lock in a worst-case rate, we still wanted to see the benefit if they moved in our favour.”
The Toppers booked a currency option called a participating forward. It guarantees a minimum ‘worst-case’ rate – but lets you benefit if rates move in your favour. The couple’s worst case rate was €1.143. When the contract ended, the prevailing rate was €1.2 – higher than the worst-case rate. The contract let them take half their euros at the higher rate, and half at the worst case rate. Their average rate was €1.1715 – leaving them �9,146 better off than if they’d locked into a forward contract.
“It was easily enough money for a new French country kitchen,” says Gina. “I was very happy with the way things worked out.”