How to manage FX exposure when buying a property in France – Part 3

In the last newsletter, we followed Caroline and Mark’s journey as they battled rising interest rates. The couple had paid for the €600,000 purchase using a combination of their savings and a mortgage to cover 50% of the property’s price. The mortgage repayments got so high that they decided to rent their property over the summer to cover some of the costs.

 Read the final instalment of our case study below, which follows Caroline and Mark’s decision-making process regarding the future of their property.

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.

Over the next six months, the couple tried to manage their increasing mortgage repayments, using their incomes from a salary and a pension in the UK. This became more and more challenging as interest rates and the cost-of-living increased.

Sadly, in Spring 2023, Caroline’s father passed away, leaving her an inheritance. After four months of probate, the couple have access to the cash left for Caroline and must now decide how to utilise their funds.

Making financial decisions

At the time of Caroline’s father’s death in March 2023, Caroline and Mark had decided that they wanted to use the money to support their grandchildren. Nursery costs were causing the couple’s daughter and her husband financial worries, alongside the increasing cost of the mortgage on their property.

Unfortunately, as the interest rates continued to rise on Caroline and Mark’s property in France, the property became less affordable. And, when they decided to start renting the property out to cover the mortgage in May 2023, they had second thoughts about owning the property at all. They wanted the property in France to be somewhere they could spend time as a family, and the stress of the cost-of-living crisis meant that they weren’t enjoying it. They started to consider selling their property.

14th July 2023 – Receiving the inheritance

When Caroline and Mark finally received the inheritance payment, they decided to pay the outstanding balance on their property in France. The couple were still in two minds about whether to keep the property. However, because of the increase in the cost of their mortgage payments and that there were no penalties for them to pay it off early, they concluded that whatever their decision, it made sense for them to pay off the mortgage with a lump sum.

Because it was such a large amount, Caroline and Mark knew they needed to be careful about when they exchanged it into euros. Exchange rates can fluctuate quickly, and when you’re transferring a significant amount of money, even a small percentage can make a huge difference to the real-term value.

The couple got back in touch with their account manager at Moneycorp, who was able to set up a Market Order for their desired exchange rate. This meant their pounds would be automatically exchanged into euros when the exchange rate they felt comfortable with was reached.

This happened within a few days of the Market Order being set up, and Caroline and Mark could pay off their French mortgage.

10th October 2023 – What to do next?

The couple had holiday rental obligations to fulfil throughout the rest of the summer, so they postponed deciding what to do until the autumn. They also spent two weeks with their daughter and grandchildren at the property in September and remembered why they bought it in the first place.

Caroline and Mark were also able to see how much they could earn renting out the property in the summer months. This extra income and the monthly outgoings they saved because of paying off their mortgage allowed them to plan to help their daughter with her nursery fees while keeping their holiday home.

The couple’s account manager at Moneycorp enabled them to set up a new Regular Payment Plan with a Forward Contract to fix the rate for two years to easily bring the money they earned from the property back to the UK. This means they have certainty over their rental income in pounds, allowing them to plan their finances in advance.

What happened next?

Caroline and Mark now take advantage of their French property outside of the summer months and plan to spend Christmas there with their family. They’re delighted to see bookings have already started to come in for summer 2024, which has given them confidence over how much they can support their grandchildren.