At last some French mortgage Brexit clarity for your French property, your French investment and your French lifestyle. Nothing’s certain, but enough is now clear to let you get planning before it’s too late.
But first, a timely question for you. Which UK politician said “I think that you will all agree that we are living in most interesting times. I never remember myself a time in which our history was so full, in which day by day brought us new objects of interest, and, let me say also, new objects for anxiety.” No, not any of the usual suspects: it was Joseph Chamberlain in 1898.
The thing is history matters. George Santayana said, “those who cannot remember the past are condemned to repeat it”. I’d like to offer you a variation for the financial world of today – If you don’t learn from the history of the markets you’ll make the same mistakes as earlier investors.
As we’re interested in French mortgages, let’s look at the Brexit situation from three standpoints, the UK, France and UK based French property investors.
French Mortgage Brexit Clarity: UK Perspective
At this stage, enough has become clear to enable us to firm up our earlier post on Brexit Implications for French Property.
What has been more surprising, and without wishing to take a political side, is the chaos that has ensued in the UK political system.
Starting from the mantra of Strong and Stable Government, the UK governing party has descended into a farce not far short of the Monty Python Black Knight sketch, embedded below if you need reminding.
In reality, there is no consensus in the UK as to what Brexit means – even the slogan Brexit means Brexit has disappeared.
More importantly, there is no longer any UK social or economic consensus with the young pitched against the old and the wealthy pitched against the poor. This is self-evident in a review of the 2017 election UK media coverage. And it doesn’t stop there. With the terrorist attacks, the Grenfell Tower disaster and the paralysis (intentional or accidental) of local authorities a socio-economic narative may be building that the UK economic model has failed for 95%, if not 99%, of the population.
Though the socio-economic narrative is interesting, if not riveting, for a UK audience it is nonetheless remarkably helpful in any attempt to establish what Brexit means for those with, or hoping to get, a French mortgage. Essentially it boils down to three facts:
GBP EUR Exchange Rate
As far as we can tell the view of the markets is that on the most probable Brexit configuration GBP is likely to trade forward into the future in the range £1 GBP = €1.10-1.20 GBP thus confirming an overall depreciation of about 20% for GBP against the EUR. The UK will have to get used to French mortgages, French property and the French lifestyle all being more expensive and for many unaffordable.
Despite the continuing confusion as to what Brexit means, we can reasonably expect that the UK will be completely out of the EU by its own choice and thus property holding by UK nationals in France will be on the same basis as all other external countries from Australia through North Korea to Zimbabwe. This much was clear from Michel Barnier’s closing observations (in French) on 19th June 2017:
“I am not in a frame of mind to make concessions, or ask for concessions. It’s not about punishment, it is not about revenge.
Basically, we are implementing the decision taken by the United Kingdom to leave the European Union, and unravel 43 years of patiently-built relations.
I will do all I can to put emotion to one side and stick to the facts, the figures, and the legal basis, and work with the United Kingdom to find an agreement in that frame of mind…
The United Kingdom has decided to leave the European Union, it is not the other way around. The United Kingdom is going to leave the European Union, single market and the customs union, not the other way around. So, we each have to assume our responsibility and the consequences of our decisions. And the consequences are substantial.” (Michel Barnier 19/06/2017).
Right of Abode
Though the exchange rate may make living in France and servicing a French mortgage more expensive, the most significant costs are likely to come from the additional costs that will be incurred by UK nationals without the right to live in France once the UK leaves the EU.
Clearly it is too early to know how this will play out (this post will be updated after the UK Government announcement on EU citizen’s rights), but already there is mounting evidence that there is a significant outflow of well qualified EU nationals.
For those with French mortgages living in France the consequences may be indirect but nonetheless very real.
Here is the scenario:
- EU nationals may take the view that living and working in the UK becomes too difficult / unpleasant so they return home. For example, EU nurse registrations in the UK has fallen by 90% in the Brexit referendum.
- The EU may take the view that going forward UK nationals living, both working and retired, will need to meet the full costs of living in the EU. In France, this could translate into much higher medical bills and a bias against employing non-EU citizens.
- If a substantial number of EU nationals, most of whom are economically active and often well qualified, return to the EU to live there will be relatively few EU nationals in the UK, thus not a political problem for the EU.
- With few EU nationals remaining in the UK it will be an open question as to how much consideration the French government will give to the situation of the UK nationals in France. Remember UK nationals in France tend to be economically inactive and who are often dependent on GBP denominated income.
French Mortgage Brexit Clarity: French Perspective
From the French point of view Brexit is really of minor significance compared to the Macron Election.
Such French citizens as have been living in the UK are predominantly economically active and may be considered as an economic asset the French government will be happy to have back.
UK nationals living in France might pose specifically local problems which will be exacerbated depending on the actual location they reside in.
As the following table shows UK nationals living in France are not uniformly distributed. By and large, though there are exceptions, the UK nationals generally gravitate to the areas of France where the local economy is weak and property prices are low. In many areas, the injection of purchasing power by UK nationals may be a significant component of the local economy both for the services and retail sector and slowing the decline in property prices.
The uneven distribution of UK nationals across French Departements may also lead to difficulty in the provision of local services. For example, under the existing arrangements medical care for UK nationals can be cross-charged back to the UK. If this arrangement ceased and the expected economic worsening of the position of UK nationals were to occur the funding for some local services in particularly affected localities might evaporate.
French Mortgage Brexit Clarity: French Property Investor Perspective
It is possible that the best, or only, good news may be for the French property investor.
The immediate good news, if you already own a French property, is that you will have potentially made a significant capital gain. If you brought a €250,000 property back before 2002 you it should have cost you around £156,000. At today’s exchange rate it should be worth £208,000, excluding any changes in property price level.
As you will have realised from the table above, in the areas that are particularly exposed to UK nationals there may be a significant weakening in the local economy and this will inevitably feed through to property liquidity and property prices. Forced sellers never do well compared to the new market entrants. So, if you are considering investing in French property the market fundamentals are on your side in the short term.
Though not Brexit related, there are two longer term trends that will favour your investment, provided you don’t delay.
The Euro has had some perverse economic consequences, well covered in Joseph Stiglitz’s book “The Euro and its threat to the future of Europe” so in the medium to longer term we expect some changes to the Euro rules that will permit easier economic expansion and a strengthening of the French economy.
The Macron effect is very likely to re-animate the French economy, particularly by bringing the younger generation back into the economy from unemployment.
Taken ogether these two features will make France a much more attractive for medium to long term property investment just as the UK economy startts to slow.