How to manage FX exposure when buying a property in France

Buying a second home is meant to be fun and exciting, taking you away from the stresses of day-to-day life. However, the initial process and the ongoing financial maintenance of a property purchase in France can require just as much admin as running your own home.

Read our case study below, which follows Caroline and Mark’s journey from search to completion – and the ongoing process.

At a glance

In June 2022, Mark and Caroline, who live in the UK, decided to buy a holiday home in their lifelong dream location of Cannes, France. They found a property that month and agreed on a purchase price of €600,000. Having only ever lived in the UK, all their savings and investments were in Sterling.

To purchase the property, they decided to use both they own funds and take out a mortgage for 50% of the value. This meant they required two large currency transfers to pay the deposit and the rest of the cash payment and a regular payment plan to cover the repayments on their €300,000 mortgage which they will need to pay in Euros monthly.

TIP: Since the currency markets are relatively volatile, the price you agree on your property purchase can vary between the day your offer is accepted and completion. It can also impact the repayments you make each month. For this reason, planning and being aware of your budget and the exchange rate before your search and at each stage along the way and after your purchase is essential.

Search to Completion

28th June 2022 – CAROLINE AND MARK ARE INTRODUCED TO A CURRENCY SPECIALIST 

The couple were introduced to a currency specialist by French Entree to undertake an initial consultation and discuss the available options.  French Entrée’s foreign exchange partner, Moneycorp was able to build a strategy to facilitate their property purchase ahead of the completion date on the 28th September.

 7th July 2022 – DEPOSIT AND KNOWING YOUR OPTIONS 

Caroline and Mark opened their currency account and paid the deposit of €30,000 using a spot contract at a rate on the day. The exchange rate was more competitive than the rate offered by their UK high street bank, saving them money right from the outset.

At this point, they also took the opportunity to discuss the market conditions. Their view was that there was potential for the rate to improve further, and based on this, they took the decision to target a better rate using a market order which was set up with the help of their currency specialist.

28th July 2022 – USING A FORWARD CONTRACT 

Caroline and Mark were notified that the exchange rate had reached their target level, and their deposit payment had been sent automatically to their account in France. Because the exchange rate was in their favour, they also opted to use forward contract to secure the exchange rate for the remaining amount of €270,000.

What is a Forward Contract*?  A forward contract is a currency tool some currency specialists provide to allow clients to fix an exchange rate for up to two years. Overseas property buyers often use this tool to secure their currency at a favourable rate ahead of their completion date.

By using a forward contract, Mark and Caroline could be sure the property price in pounds was fixed regardless of any market movement at the time of completion.

Outcome

28th September 2022 – COMPLETION DAY 

On the day of completion, Caroline and Mark set up their payment for their completion. Despite the fact the rate had fallen considerably since they paid their deposit, they were able to transfer their funds at the previously fixed rate – thanks to their forward contract.

What happened next?

Those of you who are paying off a French mortgage will understand your FX exposure doesn’t finish with the completion funds, as monthly mortgage repayments continue in Euros. A currency specialist can also offer services to support regular smaller payments such as mortgage payments, local taxes or any ongoing costs in France.

One option is a regular payment plan. The main advantage of this is to automate the payments and remove the hassle of organising a transaction each month. Moneycorp’s service will collect the payment via direct debit and send it automatically to your bank account of choice in France.

Furthermore, to ensure you have security of the amount of funds you will receive each month to cover any necessary costs, you can fix the rate on your regular payment plan for up to 24 months. This can give you certainty over your monthly expenses and protect you from any fluctuations in the exchange rate.

Alternatively, if you are happy to make your payments as and when you need to, you can manage your them via our online platform.

Don’t miss the next article, where we will explain how Mark and Caroline manage their Euro mortgage payments considering the FX volatility and the recent changes in interest rates.