Whether you live in France or are about to make the move, the result of the EU referendum could affect your finances. Currency expert Rewan Tremethick explains why it pays to be prepared
With the UK’s forthcoming referendum on EU membership taking place on 23 June 2016, it is important for British buyers of French property to understand how a ‘Brexit’ might affect exchange rates and money transfers to France.
Concerns relating to the potentially historic vote have already had an impact upon exchange rates, with the pound falling considerably since David Cameron brokered his reform deal for UK membership in February. By the end of the month, the GBP/EUR currency pair was languishing in the region of a 16-month low. With the important vote still some way off, market volatility is unlikely to go away, which could give would-be UK expats a bit of a headache.
Roughly a quarter of the two million UK nationals who live in the European Union are resident in France. If you’re one of them, or planning on making the move, the result of the EU referendum could affect your plans, but equip yourself with the necessary knowledge and you’ll be prepared for every eventuality.
WHICH WAY WILL PEOPLE VOTE?
There have already been dozens of polls conducted, each yielding different results. The reputation of pollsters took a bit of a hit following the 2015 general election, as almost all predicted a hung parliament despite the Conservative party winning by a clear majority. While polls relating to the EU referendum are still worth paying attention to, the inaccuracy of the election tallies should be considered.
More important than how UK residents will vote is how British expats will, or if they will at all. Only 5% of British expats had registered to vote by the end of January, something the UK’s embassy in Paris tried to address with a competition to win afternoon tea at Hôtel de Charost, the UK ambassador to France’s official residence. The competition was meant to raise awareness of Overseas Voter Registration Day on 4 February. Of course, embassies have to be impartial, but encouraging expats to vote is important considering they will be among the groups most affected by the referendum.
If you’ve been living overseas for less than 15 years, you are still eligible to vote. So don’t forget to register and make your voice heard, regardless of your point of view.
HOW COULD A BREXIT AFFECT MY FRENCH PROPERTY PURCHASE?
There are two key factors which could affect your ability to afford a home in France: interest rates and mortgage availability. It is unlikely the Bank of England (BoE) would want to increase interest rates if Britain was suffering adverse effects because of a Brexit. With low borrowing costs making mortgages more affordable, you may find it easier to sell your UK home in order to fund your move to France. There is a downside, however. In the midst of financial turmoil, the banks are likely to be more cautious with their lending. They may tighten their lending requirements and reject more credit applications than before, which could see you struggling to get finance even if you have a good credit rating.
If you were looking to secure a mortgage in France, you could find yourself subject to even stricter lending requirements if the UK was outside the EU. In mid-2015 many French banks introduced a new policy for expat mortgages. In order to get the best deals, you had to put the first two years’ worth of repayments into a savings account, on top of a deposit and meet all the other lending criteria, to prove that you were financially stable. When applying for credit in France, your debts cannot total more than a third of your income, which could become problematic if sterling continues to weaken and you find your pounds are suddenly worth far fewer euros than they were.
WHAT ABOUT SENDING MONEY TO FRANCE?
It’s also worth noting that a Brexit could change the regulations regarding overseas transfers. Currently, banks can only charge fees for euros transferred within Europe if they would also charge a fee for an internal transfer. If Britain were to leave the EU, there wouldn’t necessarily be an agreement in place between UK and French banks to keep this practice up. This means that you could find yourself being charged money by your destination bank, with no overall regulation regarding the amount that they can charge to receive euro transfers.
WHAT WILL HAPPEN TO STERLING?
The pound has already fallen in value considerably. As of early March, sterling had dropped 7.5% against the euro since the beginning of 2016 as Brexit fears startled investors. To put that into perspective, £150,000 transferred at the beginning of January would have given you €204,690, but the same amount at the end of February would have equated to €189,225. So over the course of eight weeks,