How to manage FX exposure when buying a property in France – Part 2

We recently introduced you to Caroline and Mark. They had just completed their French property purchase. The couple paid for the €600,000 purchase using a combination of their savings and a mortgage to cover 50% of the property’s price.

At a glance

On the 28th December 2022, Caroline and Mark completed the purchase of their property in France. They used a forward contract to secure their exchange rate when they paid the deposit on their property, which saved them a significant amount of money because the rate had fallen considerably.

They now need to manage the risk of their mortgage repayments, which they will be using their incomes from a salary and a pension in the UK to pay.

Paying their mortgage

Because the GBP/EUR exchange rate was not particularly favourable when Caroline and Mark started paying their mortgage payments, they decided to use Spot Contracts for their initial payments. This meant their costs fluctuated with rates each month, but they benefitted initially as the exchange rate began to move back in their favour.

They were also confident in the rate they received each time because Moneycorp is able to source the most competitive rate from its panel of 16 liquidity providers. The couple also set up a Regular Payment Plan to automate their payments and ensure their money was exchanged on the right date every month without having to think about it.

16th March 2023 – ECB raises interest rates to 3.50%

 The European Central Bank raised interest rates for the sixth consecutive time in March 2023, impacting Caroline and Mark’s variable mortgage. They had planned their finances to factor in an increase in mortgage rates, however, their other costs had also been increasing with inflation both in the UK and in France.

After speaking with their account manager about their options, Caroline and Mark decided that they should look at managing their currency risk so that they don’t get any nasty surprises from volatility in the market. Through Moneycorp, they were able to set up another Forward Contract that fixed the exchange rate on the monthly payments on their Regular Payment Plan for up to two years.

21st May 2023 – Renting their property during the summer months

Although they hadn’t initially planned to, Caroline and Mark decided to let their holiday home for a few weeks over the summer to help with their costs. To do this, they had to pay some upfront costs to prepare their property for paying guests. They also had to cover some ongoing cleaning fees and the cost of managing the property while it was being rented out.

To minimise their currency exposure, they also decided to use the euros they earned from renting their property to pay their mortgage over the summer months. Thanks to the flexibility of the Regular Payment Plan, they were able to manage the amount on the direct debit through Moneycorp’s online platform to both cover the extra costs at the beginning of the summer and reduce their payments when their rental income covered their mortgage.

What happened next?

Caroline and Mark have flexibility and support managing their currency exposure from their account manager at Moneycorp, but they are growing increasingly concerned about the increasing mortgage rates in France. They also have a mortgage in the UK, so they are dealing with rising costs from two properties.

The couple expect an inheritance payment to be paid into their account shortly, as probate has just been finalised on the will of Caroline’s father. Once they receive it, they’ll decide how best to direct their funds to manage their costs.

Do not miss the next update, where we will follow Mark and Caroline after they receive a lump sum from an inheritance and decide how to manage their costs.