You may have noticed that recently (as shown on the chart below) we are more than merely dipping our toes in the weakest zone the Pound has ever found itself against the Euro, but wading waste deep. As of the date of writing (the morning of 17th December 2008), the Pound buys just €1.1045 and people are asking how long before we are up to our neck in it (parity and beyond).
No one can say for sure which direction the Pound will take next, since we know of no one who was able to forecast our current climate. The Pound is so weak due to ever reducing UK interest rates and the general view of a very poor performing economy. However, if we look at the history of economic slumps, the UK generally goes in first and deepest against our European neighbours.
If we look at a graph showing a market going through a slump, it is said to form a shape, the main ones being ‘V’, ‘U’ or ‘L’ (the ‘L’ being one with an upward curve).
Generally the UK goes through a very steep and long drop, however bouncing back hard from the bottom, thus a V shape (which the cynics out there might call “boom and bust”). I would suggest that we have yet to hit the bottom of the V, as there is undoubtedly more bad news to come (not being a cynic, more a realist).
Europe, however, tends to be last in and last out, but not as steep, in a cycle that is more of a shallow U shape, thus the down cycle tends to last a lot longer, hence Europe could be in trouble for longer.
If the current global recession copies the general theme of the past, which it already seems to be doing, Europe will still be suffering when the UK is bouncing back hard, thus the Pound could see somewhat of a rapid revival against the Euro. This is surely a basis for recommending that people avoid exchanging high levels of Pounds into Euros for the time being.
As long as this can be avoided and you have enough income to live with a reasonable margin for error, there is no reason why a move to France cannot happen now, however, you would need to plan for the bottom of that V being some way off, having a solid financial plan.
Having offered financial advice to the British expatriate community for many years, we have a unique perspective on what is going on in the hearts and minds of our clients and other people we talk to. Indeed many people are indecisive as to what they should be doing in the current climate.
The big question is has the weak Pound actually stopped people moving to France?
The answer is no, people are still moving to France, but the dynamics have certainly changed. The largest section of ongoing movers are now those who already have a property here in France, so do not have the worry of 1) Needing to immediately sell their homes in the UK and 2) Exchanging large amounts of Pounds into Euros.
Of course the next largest section, of those still moving are those who are buying with a French mortgage, again avoiding moving large levels of Pounds into Euros.
The small, but now increasing group, are those who are moving to France and renting. This is not a bad thing, since we have always encouraged people to rent anyway to ensure that they are happy in their chosen location before committing themselves with a purchase. For the moment, renting makes sense from fiscal point of view as, again, this avoids exchanging large amounts of Pounds to Euros.
Of course, the issue with buying with a mortgage or renting is that it still requires a certain level of activity with regard to exchanging Pounds to Euros, as one must pay the rent / mortgage payments, thus those who already have a property in France are best placed to shrug off exchange rate concerns.
There are still the traditional concerns around moving to France, such as personal taxation and succession law. Personal taxation tends to be lower in France than the UK for the majority of our clients, which is nearly always a nice surprise for them. Indeed there are generally workable solutions to many potential issues.
You may have read some sensationalist reports from journalists in the UK that the British are moving back in their droves. As far as we are concerned, this is simply not true. There is a very small minority of people who moved to France on a tight budget and are starting to move back to the UK, as they find they can no longer survive on a UK pension that has dropped in value by around 20% in the last 12 months.
However, we have yet to have a single client give up on France, as those we have advised have not been left open to the weakness of the Pound, due to the fact that we help our clients plan for all eventualities, and the fluctuation of exchange rates is an important part of this.
Those who can only just survive on what they have should not consider such a move, not now or indeed at any time, since there will always be fluctuations in the value of their investments, currency, rental income, etc. and you need to be able to plan for such possibilities, since good financial planning is based on dealing in certainty as far as possible.
Many people still have a dream of moving to France, but of course, one needs to be realistic. By taking our advice you will be in possession of ALL the facts and we will advise you as to whether it is a good idea or not, to move to France, given your particular situation. We all know that good decisions are based on good information, so talking to a financial professional is critical, to consider all the facts before making up one’s mind. Talking to Kentingtons will cost you nothing but the price of a phone call, so if you are unsure as your next move; please do contact us.
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