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By Robert Kent, of Kentingtons.
If like me, you are feeling shocked but not all that surprised by the final vote, you will eventually start thinking again about what this means for you practically.
We have seen the main concerns discussed over and over again in the weeks building up to the vote and I don’t intend to rake over those again, purely because much of what has been discussed is conjecture; we simply do not know what any deal with Europe might look like.
This means that concerns such as access to healthcare and the application of social charges to pensions etc. remain uncertain. What we are fairly sure of is that nothing much will change for the next two years. A UK national’s rights and obligations, under EU law, will remain unchanged until the UK officially leaves.
This is about “what now?”
99% of Kentingtons clients have all, or at least a significant percentage, of their capital in Euros. This has always been recommended by Kentingtons as it is clearly logical to maintain capital in the currency in which you spend. The outlook for Sterling is unsure, but volatility is a certainty and this makes planning a challenge.
During the last economic crisis we saw Sterling fall close to parity to the Euro. We advised our clients, who were not doing so, to draw income from their investments in Euros to defend themselves against the dramatic falls. This means that pensions were left building up in the UK in Sterling, (or being moved into a French compliant assurance vie though, remaining in Sterling) waiting for a better rate.
Clearly one needs to have sufficient capital to do this for a prolonged period as it is difficult to know how long the weakness may last. This worked out well, as we saw 1.05 in Feb 2009 and then 1.24 by April a year later and the very patient saw higher levels. So here we go again, not parity just yet, but let’s see.
Whether or not you should stop moving your pension, needs careful consideration and I would argue that we need to see significant falls before we do this. The point is that before panicking about the poor exchange rate, it is good to know that there are simple options to be considered.
Equity Market investing
If you are invested in the stock market, the value of your portfolio will be volatile, with the general short direction being downward. It is very important to understand that volatility and capital loss are not at all the same thing. The stock market is not rocket science; buy when prices are low and sell when they are high, but when it comes to private individuals, however, people panic and do just the reverse.
Almost all of our clients have at least half of their money invested outside of the stock market and this is so that they can calmly ride out significant market shocks, not ever needing to realise losses, safely drawing any income from a non volatile source.
For those who have a sufficient amount in secure capital, and are happy to accept some volatility, some buying is worth consideration. Markets and prices fall during periods of uncertainty and so good value is there to be found. Again, timing is the issue, so there needs to be sufficient capital remaining to be sure of avoiding realising any losses during the volatility.
In summary, there is no need to panic, but there is a need to make some carefully considered and well thought through decisions, based on logic and good common sense. There are options to guard yourself from Sterling weakness and even opportunity for those who have the capacity to buy in at potentially low prices.
KENTINGTONS SARL, Z.A. "LES ESPARRUS", 83690 VILLECROZE
Tel : 04.98.10.12.55 Fax : 04.94.84.37.65
RCS 500 163 282 DRAGUIGNAN,
Conseiller en investissements financiers, référencé sous le numéro F000116 par La compagnie des CGPI, association agréée par l’Autorité des Marchés Financiers
ORIAS 08038951 Garantie Financière et Assurance Responsabilité Civile Professionnelle Conformes Aux Articles L 512-6 et 512-7 du Code Des Assurances
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In terms of enquiries, they are steadily coming in, as normal. When the campaign began we found that there was a temporary lull in British enquiries, but that quickly stabilised with the level of enquiries returning to normal. Buyers are also viewing, making offers and sales are completing at a normal rate. Buyers are negotiating as strongly as ever and vendors are keeping their cool. The rules of the game are take your time and be prepared to be flexible over price and means of payment.
Priced at 245000€: the owners will negotiate on the price of both the property and the furniture for this lovely Charentaise farmhouse.
Where the challenge does lie however, is with the currency markets as exchange rates are volatile and are largely reflecting what opinion polls are forecasting regarding the result of the referendum vote. The markets quickly took the view that should the vote go in favour of Brexit then the pound would fall sharply (figures of between 10% and 20% have been suggested by some). Inevitably exchange rates have moved in anticipation of this as as the Brexit vote has appeared to be moving ahead in the polls and some of the the anticipated fall has already been built into the current exchange rate. Markets are not always right, however, either in forecasting the results of the vote or in forecasting the direction in which exchange rates will travel.
My own view is that we are in unpredictable territory. As far as the property market is concerned, it is clear that British buyers are aware that a lower pound means their budget for a French property is LESS. On the other hand, if a vendor is exporting the funds received from a house sale back to the UK they could be realising MORE than they had originally budgeted for – you can see that there will inevitably be some sort of trade off if a deal is to be reached between buyer and seller.
For example, if you are moving money back to the UK then of course a low exchange rate is good news and 300000€ realised from a sale on January 1st would have bought £220 000 while on April 11th it would have achieved £243 000; a difference of over 10%. The opposite argument is the case if you are moving money from the UK to buy in France.
Because of this the currency exchange houses are working overtime trying to persuade people to take advice when moving large amounts of money from one currency to another. Timing is everything and in many cases you can use quite sophisticated mechanisms to forward purchase or spot purchase funds and achieve the best deal possible for you.
French Properties Direct are not currency dealers, so for a better explanation you could do a lot worse than have a look at the brochure which Smart Currency Exchange has produced for people moving back to the UK and then have a chat with them. If you are not moving back to the UK but are going elsewhere outside of the Eurozone then the principles they outline still apply. Please get in touch with us if you would like a copy of the brochure.
Selling to move back to the UK - could you transact in the same currency?
The other alternative is to handle the transaction in, say, Sterling rather than euros, which will avoid changing currencies and give both parties a degree of certainty. This is not common practice, but it can and does happen and your notaire should be familiar with the mechanics of the transaction. The principle is that the notaire will require the buyer to pay their 10% deposit in euros (this ensures that the notaire and the French Government get their fees and taxes) but the balance can be paid into an escrow account in the UK. This is held by a UK solicitor who is known to the notaire and only when they guarantee to the notaire that the funds are safely lodged in the account can the sale complete. As ever, there is an additional charge for the service. It may be worth discussing the possibility of selling by this method with your notaire if you think it could help you seal a sale.
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Yesterday I visited Eymet in the Dordogne where, apart from a fantastic brocante, there was a cricket match - SW France versus Lord's Taverners. Cricket is gaining popularity in France and the South West has several teams which fielded a 'super-team' to play the visitors at Eymet's cricket ground. Lord's Taverners tour the world raising money for young people, providing sporting opportunities for those who are disadvantaged.
The Taverners are made up of celebrities, ex professional cricketers and other volunteers who give up their time for the charity.
Yesterday we had Mike Gatting and Andy Caddick, from the cricketing community, plus celebrities Nicholas Parsons (commentating, not playing), Chris Tarrant and A Place in the Sun's Jonny Irwin.
I had the chance to tell Jonnie about French Properties Direct....so watch this space and lets hope A Place in the Sun casts an eye in our direction.
Incidentally, the home team won (rather convincingly) the Lord's Taverners raised lots of money for their good causes and a good day was had by all.
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Today is a public holiday in the UK, however, In France, although we also have our equivalent of May Day, we apply different rules as to how public holidays, or Jour Feries, are taken. We also have a lot of them in May, so if you are travelling to France to view property it pays to know what is what.
In France the day's holiday is taken on the day on which it falls. We have no 'lieu day'. So, yesterday was May 1st and that was when we took our equivalent of Labour Day (Fete du Travail) even though it was a Sunday. Today we are back to work as normal - or, as normal as Monday is in France - it is frequently taken as a day off by owners of small business who have worked on the Saturday.
To compensate for this, we make up for 'lost' days of holiday by 'making the bridge' (on va faire le pont) whenever a public holiday falls on a Thursday or a Tuesday. Basically, if there is one day of the working week between the day's holiday and the weekend those who can do so tend to make a long weekend of it. This will happen next weekend when Ascension Day takes place on Thursday 5th May. Many people will treat the period from 5th to 8th May inclusive as a holiday - so expect a lot of shops and services to be closed - especially smaller ones, where the owners do not employ staff. This principle tends to be fairly rigorously enforced and even Christmas Day is taken on the day on which it falls with everyone back to work as normal the next day (unless of course it falls on a Thursday......).
Traditionally on May 1st children gave their mothers bunches of Lily of the Valley - a flower which is in bloom about now
French holiday dates for the rest of this year are as follows:
May 5th Ascension Day (Jeudi d'Ascension)
May 8th Commemorating 8th May 1945
May 16th Pentecost (Lundi de Pentecote)
July 14th Bastille Day or the Fete Nationale
August 15th Assumption Day (Assomption)
November 1st All Saints' Day (La Toussaint)
November 11th Armistice
December 25th Christmas Day (Noel)
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We have just received an update from our French mortgage partners letting us know that following a downward movement in rates on the financial markets they have reduced their mortgage interest rates by up to 0.45%.
For example - at an 85% loan to value rate they are currently offering as little as 2.6% . They have quoted an example of borrowing 100 000€ across 20 years at 85% LTV which would result in monthly payments of approximately 535€ per month, excluding life assurance. Our lenders can also offer interest only mortgages when there is a loan to value rate of 75% or less.
We are seeing buyers negotiate some excellent deals across France at the moment as vendors are tempted to sell for less because of the strengthening euro. This, coupled with the downward borrowing rate movement makes it a great time to make the move to France.