French property equity release mortgages can be a key element in the long term asset management strategy for financially astute investors.
Owners of French property who are not tax domiciled in France can use a French Equity Release Mortgage to increase the yield on their investments. At the same time as reducing their tax bill.
French property equity release mortgages cannot be used to release capital to provide income for which the French use Viager Sales.
French Property Equity Release | Why Now
There are two factors that make French property equity release particularly attractive.
- Euro zone interest rates are presently very low and are unlikely to go lower
- The period of historically high Euro (€ EUR) exchange rate against both Sterling (£ GBP) and the Dollar ($ USD) is now passing
Euro Interest Rates
Our forecasts suggest that the turning point of this interest rate cycle will come between Q3 2015 and Q2 2016. You can find full details of our current view on our Market Trends pages.
Our view is that we’re slowly emerging from a “U” shaped global recession, which in Europe looks more “W” shaped, and that the world economy is back on the path to growth: for the supporting data go to the World Bank website.
Growth will be fuelled by the recent period of low interest rates supplemented by the policy of quantitative easing.
The combined stimuli that the world economy has received are likely to lead to a long period of rising interest rates, driven by inflationary pressure and the enormous overhang of national debt in the major economies. We expect the peak in the next interest rate cycle to be lower than the more recent cycles with the rate peaking below 7% in most developed economies.
In these circumstances anyone with a fixed rate loan, fixed at these historically low levels, will win big time. Not only will you have cheap money into the future but also the real value of the debt will be eroded by future inflation.
Already UK/US lenders have widened spreads to rebuild reserves. We forecast this trend becoming pronounced in the Euro zone during 2015 to 2016. So if you want a bargain interest rate don’t wait around too long or they’ll be gone.
Up to date and historic ECB interest rates are published on the European Central Bank website.
Euro Exchange Rate
The period of the historically high Euro (€ EUR) exchange rate against both Sterling (£ GBP) and the Dollar ($ USD) is now passing.
In terms of long term investment strategy, realising Euros (€ EUR) now and converting them to Sterling (£ GBP) or Dollars ($ USD) could represent a very shrewd investment move.
Longer term, 2017 and beyond, it’s likely that the transaction could be reversed to pay down your Euro (€ EUR) Equity Release French Mortgage at much better foreign exchange rate (i.e. with the Euro much weaker).
To illustrate the point let’s look at an example using data from 2009 to 2011. We have deliberately avoided choosing favourable dates, but as you will see from the graph trades could have been timed to maximise the return from the strategy.
Suppose you had released EUR 100,000 of equity from your French property on the 2nd January 2009 and converted it to GBP at the then rate of EUR 1.0406 to GBP 1.00. You would have netted GBP 96,098.
If you had then held the GBP until 20th August 2014, GBP would have rebounded to EUR 1.253 to £1.00 and so it would only cost you GBP 79,808 to repay the loan.
You would thus have netted GBP 16,298 tax free profit from the transaction
The graph for GBP/EUR is courtesy of ECB
To see the full and up-to date-daily spot exchange rate history graph against GBP, USD and the rest of the world’s currencies go to the European Central Bank Euro Exchange Rates page.
Conclusion
Assuming you’ve followed our reasoning we suggest that there are 5 clear conclusions:
- Take no financial risks and don’t bet all your assets on one strategy.
- Capitalise on today’s low EUR interest rates by taking the maximum French Equity Release Mortgage that your property warrants. You need to ensure the repayments stay within your financial comfort zone.
- Move the released EUR into your local currency to hedge the expected fall in the EUR.
- Minimise the costs of the FX transaction. See our Foreign Exchange page for more information.
- Ensure that your assets (your French property) and your liabilities (your French Equity Release Mortgage) remain broadly in balance. You will have no future contingent foreign exchange risk because the asset and liability are denominated in the same currency.
Sit back and wait for the inevitable market re-adjustment on Euro interest rates and Euro exchange rates.
After the interest rate and currency re-alignment, consider your next move. Perhaps you wish to buy out your French equity release mortgage at a discount. Maybe you prefer to just sit secure in the knowledge that your net assets are out of reach of the Code civil.
A Fast Cost-Effective Solution
Assuming your financial profile meets the French banks lending requirements, we can help you implement this strategy in weeks.
The solution is very cost-effective because the total costs are likely to be in the order of €3,500.
The costs are made up as follows:
- A Bank administration and property valuation fee which is likely to be of the order of €1,000 to €1,500. This is only payable if you accept the French equity release mortgage offer and draw down the funds.
- A notarial charge of around €2,000. This covers the legal costs of registering the lending bank’s first charge over the property with the Banque de France. This is only payable if you accept the French equity release mortgage offer and draw down the funds.
- There are no other fees or charges and there are no broking charges with Best French Mortgage. Read the Best French Mortgage Customer Charter.
How To Find Out More
The use of a French property equity release mortgages are not available to everyone. The French banks have very strict lending criteria for a French property equity release mortgage.
It also is also a financial strategy that carries asset allocation risk, so it is only appropriate as part of a sophisticated portfolio of assets. The portfolio may include direct investment in stocks, shares and bonds.
It is not permissible to use the equity released to directly enhance your income, though it is acceptable to use the released equity for investment purposes.
Because of the restrictions, it is not possible to fully cover all the options on this page. If you are interested in exploring your options in detail, please contact us. We will give you a free personalised assessment of what might be possible for you.
