The spectre of a near par, Sterling/Euro exchange rate has been haunting the pages of, not just, ex-pat financial press and media channels over January. Part of the problem is that it has all seemingly happened “so suddenly”. One consequence in terms of reportage has been the many French media tales of “les Anglo Saxons” retreating back across le Manche like the Black Prince’s beaten chevauchee plunderers, post a whipping from the Breton Knight’s forces in the Hundred Years War.
The French obsession with saving as opposed to borrowing allows their economy to enjoy the protective coat of a high savings ratio and low consumer debt levels in such times as these, leaving it better able to cope than the US and UK in this Global recession. Unfortunately, many of our readers are still subject to their income streams being significantly affected by exchange rates and UK property incomes & values. This is especially so for those with UK sterling denoted pensions, those with mortgaged UK properties and even those with mortgage free UK properties, both who may be relying on UK rental incomes.
Any improvements that can be found in the costs of exchanging regular income amounts are welcome. It may be worthwhile for some to look carefully at the bank charges and rates they are receiving from their current French/UK bank account provisions. The specialist currency exchange providers are very competitive in terms of service provision (often free) and rates, dependant on the amount being exchanged. Being able to exchange higher amounts through these providers (usually) above £5k will improve the exchange rates offered to at least 300 points and often more above tourist rates and for higher sums further rate improvements are available.
Now is a good time to be reviewing your financial situation in the round. Just looking at deposit interest rate returns as many do is not enough. You need to review your whole portfolio and do so in the context of taxes payable, assets and asset types held both in France and the UK.
A prospective client approached me last June, explaining that she had accepted a redundancy payment around 18 months before, She was in her early 50’s and owned a mortgaged apartment in London, valued at the peak at about £350k. She had just had it revalued at £295k. She owned an apartment in the south of France outright and her desire was to live in the South of France. The remaining “redundo” as she called it, would last her 10 months if she remained in London. It would last over2 years if she moved to her apartment in France and rented out London.
Having carefully reviewed together, all aspects of her financial position, where she wanted to be, the income/outgoing levels of her life in both countries and prospective net incomes, rental void risks etc., after costs of renting out both properties and living in the other, I offered a number of ways she could address her issues. The interesting point is that the one that fitted her desired life in France best and resolved her inherent cash poor/asset rich situation was just one that she was not prepared to engage with.
Even though I reminded her that:
- Her biggest desire was to live in France (in Euros)
- The London apartment was a declining Sterling asset, full of risks and at best only likely to produce a net income p/month of £325 (assuming no rental voids)
- On current cash reserves she could live in France for over twice as long as in England without risk.
- She could draw down sufficient cash from the property sale even at £250k to live until retirement at 60.
- Create an 80% capital protected investment fund (that actually grew 12% in 2008), which;
- is tax efficient in France and;
- would allow her to draw down sufficient money to live on from 60, at an average tax rate of under 3%.
The fundamental reason behind this was her utter and typical “British” conviction at that time, that her mortgaged London property was her “pension”. I understood this sense of “bricks and mortar” security, because it was something that I fundamentally believed in, when I lived in the UK. As a financial advisor, one would always recommend that property should be in a client’s portfolio and for most Brits this component will be fulfilled by their home. This lady however, had two homes and given how things have mapped out since June, it’s clear that the “new economy” in terms of UK property assets over the next few years, is not going to see the historical growth of the past decade to June 2007.
As I mentioned above, it is absolutely important to review things in the round, but even though in this case we did so and came up with a solution that we both agreed was the best, long held and cherished security values can be hard to give up on. But any fund manager worth his salt will tell you that once you’ve got a dog that was once a star, get rid of it. The chances of its luster returning, set against the chance of finding another star are not good odds. Clinging on to or in the case of the supposed exodus, returning back to what you know usually turns into a heavy dose of disillusionment.
Spectrum does not charge clients for advice given, which is independent, regulated and indemnified.
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