The UK budget lifts French property in a surprising and unexpected development that has so far escaped the attention of most commentators.
Whilst most commentators have focussed on George Osborne’s 2015 UK budget headlines and how they will affect the UK economy and the election prospects of the UK Conservative party in May’s UK General Election the probable effect of the French property market has been ignored. We explain how the UK budget changes are likely to have a significant impact on the property market in some French regions.
UK Budget Headlines
- Increased personal allowances
- The introduction of a new Personal Savings Allowance
- Changes to ISAs including the introduction of a new type of ISA for First Time Buyers
- Changes to pensions
- Potential business rate reform in England
- Entrepreneur’s Relief – changes to qualifying conditions
How UK Budget Lifts French Property
In our view there is a very direct link between the proposed changes to UK pensions and entrepreneur relief and the French property market in some regions, but the link isn’t obvious.
Here’s how we think the link will play out in respect to pensions:
- The changes to UK pensions will allow people with pension pots to withdraw funds with fewer restrictions than previously.
- GBP is expected to strengthen further against the EUR. If so France will again become an increasingly cheap place to live for those with GBP income.
- Because of the recent poor performance of the French economy French property is very cheap. This is especially pronounced in the more rural areas of France that tend to be chosen by early retiring Brits.
- Because most conventional investment returns in the UK are low, the preferred UK investment is in UK buy to let property.
Put the above together and we expect to see many people cashing in their pension pot to buy out their UK mortgage, putting their UK property on the rental market to generate income and then moving to the favoured low cost areas of France to achieve a better quality of life whilst reducing their living costs.
The entrepreneur’s relief changes will have a much more direct impact on the French property market. The increased tax relief will make more cash available for those taking retirement, whether early, planned or late. These ex-entrepreneurs are more likely than average to decide to relocate to rural France.
The effect of both these changes will be amplified in the French regional property market for two reasons:
- The areas where the new arrivals will likely choose to live presently have an net outflow of French citizens and their arrival will change the dynamics of the property market from net seller to net buyer.
- The UK buyers, familiar with UK property prices, will perceive French property as cheap and will likely fuel property price inflation as they bid for property.
In short, George Osborne’s budget may be more universally welcomed in the Maries across rural France than it has been back in the UK!