Money column


How to mitigate exchange rate risk when buying a French property, by Mar Bonnin Palmer


G


ood news for anyone owning or thinking about owning a property in France is


the fact that inflation appears to be slowing down and coming closer to the target rate of 2%, which is fuelling speculation from economists that central banks could start reducing interest rates. Markets are currently


expecting six interest rate cuts from the European Central Bank in 2024, which would see rates fall to 2.5% by the end of the year. The first of which we could see as early as April – which could be good news for anyone hoping to secure a mortgage for a French property purchase. With this in mind, buying


a property in France could be firmly back on top of the agenda for anyone who’d pressed pause on their dreams over the last 12 months. This means it could be time for a refresher course in foreign exchange and how it could impact your journey to buying a property. Let’s explore the key concepts.


EXCHANGE RATES The currency market is volatile, which means there is always a certain amount of uncertainty or risk involved when you exchange money. Exchange rate fluctuations


can directly impact the cost of the property in your home


currency. If the euro’s value strengthens against your home currency (GBP), the property’s price in pounds would usually increase, potentially making it unaffordable. For instance, in 2023, the


GBP/EUR rate fluctuated between 1.1775 and 1.1135. To put this in perspective, the difference in price at these rates on a €500,000 property would be more than £24,000. Last year, volatility was relatively low; in 2022, the difference between the highest and lowest rates would have made a difference of nearly £51,000. However, there are ways to


help protect yourself from risk, which we’ll discuss in more detail later.


TRANSACTION COSTS There are two additional costs to factor in when you exchange money between pounds and euros. Transfer fees: This is simply a charge that banks add to a transaction. The fees are often used to cover the bank’s international transaction processing cost. Some are more hidden than others, so as a consumer, you should always be wary of what total price you will end up paying. You will find that most


high street banks charge a fee of some kind, and these charges are incurred on each transaction, regardless of how many overseas payments you


“The variance between GBP/ EUR exchange rates across the market can be more than 4% - amounting to £4,000 for every £100,000 you exchange”


86 FRENCH PROPERTY NEWS: March/April 2024


make. These can be anything up to £30 per transaction, and usually between £2 and £7.50 to receive funds. This means that if you send 12 regular monthly payments throughout the year to your UK bank account from abroad, it could easily incur charges of up to £450. Variance: When you look at exchange rates on a price comparison website, you’ll see a difference between all the providers, known as variance in the market. While the difference often looks like a few cents, these relatively small amounts can have a


massive impact on your money. The variance between GBP/ EUR exchange rates across the market can be more than 4% (data taken on 12/01/23 and sourced from Bloomberg and RBS). This is particularly impactful when exchanging the more significant sums associated with buying a property - amounting to a difference of £4,000 for every £100,000 you exchange.


PROTECTION FROM CURRENCY RISK Normally, completion on a property in France takes two


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