By being aware of how currency fluctuations can affect you, and by being prepared, your money could go a whole lot further, writes David Trumper
Our insider explains how you can make your money go further
There are many things you can organise in advance when making the move to France, but no amount of planning or research can change how the French property market is performing or what the exchange rate will be when it’s time to pay for your new home.
France, and its economy, have long been used as something of a barometer for the entire Eurozone. If France is doing well then you could reasonably expect the rest of the Eurozone to be ticking along nicely. However, this has not been the case for a while now.
In summer 2015, we’ve finally seen some growth returning to the French economy after the best part of a two-year stagnation. Recently, driven by wider deflation caused by falling oil prices, consumer spending has started to return – albeit rather slowly. And with unemployment still north of 10% at the end of 2014, it’s not difficult to see why.
Unlike most European countries, however, France is yet to really benefit from the weaker euro currency. Germany, Spain and Italy have all seen increases in demand for their exports at far greater rates than France. Germany’s are up 12.4% since the beginning of the year, while Spain’s were up 6% alone in March. France, however, has only managed a 2.5% gain since January.
So what’s the cause of all this? Well, France’s manufacturing sector has contracted every month for the past 12 months, while others in the Eurozone have been growing. Government austerity has limited investment in key industries and money coming in from abroad has been directed towards other Eurozone nations to save on taxes and costs.
And here’s the bit you’re interested in: what does this mean for the French housing market and for expats buying property in France? Actually, it’s rather good news, since in the same way as France’s manufacturing sector has contracted, a similar lack of investment has been seen in the French housing market. In the past 15 years, French house prices have increased by around 6% a year, but in 2014 prices fell by 2.4%, and with cheaper mortgage rates, it’s a buyers’ market at the moment.
With prices coming down, your money should go further. But that’s before you’ve accounted for the exchange rate. You may be surprised at just how much you could save – or lose – through the exchange rates, and this is why it’s important to get your finances in order from the start.
One way to be prepared is by looking at the exchange rate and making sure that you won’t end up paying more than you’ve budgeted for. For example, if you’re buying a property in France worth €500,000, a 2% shift in the currency rate is worth €10,000 – that’s the sort of fluctuation that could buy you a new kitchen, or have the garden landscaped.
The pound has enjoyed real strength against the euro in 2015, and in August this year, it was 13% stronger against the single currency than a year before. In August 2014, one pound bought you €1.25. A year later, it would have bought you €1.41. If you were buying a €1m property in France, it would have cost you £800,000 in August 2014, and just over £709,000 a year later – that’s a staggering £91,000 less.
When it comes to actually making the transfer, and to make sure you’re not stung by uncompetitive exchange rates, it’s a good idea to speak to a currency specialist who will take the time to understand your requirements and offer options that would best suit your needs. A good currency specialist will always be on hand to guide you through the process.
You can’t control the exchange rates, but there is a way of guaranteeing yourself some control and some certainty over the rate you’ll end up getting, and that’s by making sure you use a forward contract.
Let’s say you’re buying a property in France. You don’t need to pay the balance for another two months, but you really like the look of the current pound to euro exchange rate. That’s absolutely fine. With a forward contract, you can secure that exchange rate now, which means you’ll know exactly how much you’ll be paying for the property when you settle the balance in two months’ time; no matter what the currency market does in the meantime.
Once you’ve signed on the dotted line and made the leap, the story doesn’t end there. You will still need to make regular payments and there are ways to ensure that you make them in a fast, efficient and cost-effective way.
If you haven’t bought the property outright, you may need to pay mortgage payments every month. That’s where a currency
exchange company comes in. You can choose for the payment to be made from your UK bank account every month at the exchange rate on the day, or choose to fix an exchange rate in advance so you’ll know how much you’ll be paying every month. This will help you budget, and you’ll have the peace of mind of knowing that whatever the exchange rates do, you won’t be affected.
What’s also beneficial about regular payments is that they are paid automatically without you having to do a thing, which means that they give you more time for the more important things, such as enjoying your new surroundings.
You can claim your UK pension and transfer it to France. Through what are known as Qualifying Recognised Overseas Pensions Schemes (QROPS) – overseas pensions which meet the rules of where they are located – you can have your pension paid into your new French bank account.
Once you have become a tax resident in France, you can transfer your pension fund from the UK into your QROPS just as you would between pension providers back home. You needn’t worry about transferring your work pension scheme as you can transfer most types of pension, including personal pensions and
You may be surprised at just how much you could save – or lose – through the exchange rates, and this is why it’s important to get your finances in order before you start
those opted into through work.
And, of course, when transferring your pension from the UK, make sure you use a currency exchange company to secure a competitive rate.
SENDING MONEY HOME
If you still need to send money home – perhaps you’re working abroad, but your family is still living at home, or maybe you’re paying a mortgage on a second home – you can use a currency exchange company to make those payments for you. In the same way as regular transfers work, you can arrange for your salary to be sent automatically every month, either at the exchange rate on the day, or at a rate you’ve fixed in advance.
BUYING A FRENCH PROPERTY IS JUST THE START
There will always be reasons to make currency transfers, so it makes sense to save as much money as you can. Though no one knows where the exchange rates will go, you can have some control by fixing your rate and by choosing a currency exchange company rather than a bank, with whom you could end up paying much more – sometimes 2, 3 or even 4% – through inferior exchange rates. Speak to a currency expert and you may be surprised by how much you could save. www.timescurrencyservices.co.uk
David Trumper is a currency expert at Times Currency Services