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Money makeover: Remortgaging help

Should we remortgage our French home for sterling and invest it in UK?

MY HUSBAND and I heard that it is possible to remortgage our home in France and transfer the money to the UK to invest. The pound is very low and we are sure it will not stay that way forever, so it seems a good deal – we can reap the benefits of investment and exchange rates in a few years. Is this a good idea? What would you recommend? S.B.

Tim Yates
The Spectrum Group
Valbonne (Alpes-Maritimes)

Depending on your income it is certainly possible to remortgage your home in France to release equity and for you then to transfer the money to the UK to invest it in sterling.

You could choose to have the mortgage either on a capital and interest repayment basis or, if you have significant other assets besides the property, on an interest-only basis.

In both cases the amount you could borrow and the term will be dependent on your ages, income, the value of your house, your other assets (for interest only) and your ability to cover the mortgage with life assurance.

If you decided to go ahead then you would not even need to move the money to the UK to achieve your aim as there are assurance vie (life assurance)-compliant investment bonds available in France (which are one of the most tax efficient places to invest in if you are a French resident) that offer a huge choice of sterling funds.

Whether it is a good idea or not is entirely down to how relatively weak you believe the pound to be and when and to what extent you think it will recover. Analysts are divided. Some predict parity being reached between the euro and the pound while others believe the pound will eventually recover to a rate of about €1.25.

Clearly if your prediction is wrong the consequences would be expensive. Even if the pound does eventually buy, say, €1.25 this only represents a 13% increase on the current rate.

While this would be impressive as a return if it only takes a couple of years or less to achieve, it would be much less so if it takes longer. Also, you would need to deduct the costs of borrowing, both one-off and ongoing.

You would obviously have your rate of investment return to add to this growth figure but without knowing your overall financial situation, your investment timescale and your attitude to investment risk, it is not possible to suggest even an approximate figure for this.

Robert Kent
Cotignac (Var)

Most French lenders will not be happy to let you borrow merely to send the money to the UK to invest.

In the event you find a lender that does not care where the money is being spent – is it a good idea?

The answer to this question is really a matter of opinion and a debate no one will ever win until the economics are known. However, if one referred to the “ABC of good financial planning,” page one, line one would begin: “Deal with certainty as far as possible.”

I could draw parallels with the property boom in the UK when people took on second mortgages and bought property they could not afford because prices were increasing so much they thought: “What could go wrong?”

The outcome of a newly-strengthened pound is possible and, many would say, even likely. However, having worked in the financial industry for many years I know that there is no such thing as a “dead cert” and nothing should be taken for granted.

If I looked at cases over the last decade where people have gambled with currency (not on my advice) with the intention of making a profit, I would not be able to show you a scenario where it worked.

Imagine if your investments did not make money or even lost it, you still pay interest on the capital borrowed and what if sterling did not make a significant recovery prior to the loan needing to be repaid to cover the difference? This is not my forecast, however it is not impossible.

Simply put, you are hoping that your future UK investments will always produce a greater rate of return than the interest on your remortgage repayments and that the exchange rate goes in your favour. If any one of these variables went sufficiently against you it could ruin the whole plan.

There could be other costs: charges by the bank for the remortgage, currency transfer fees, initial charges for setting up UK investments, tax implications and early redemption penalties on the remortgage should you try to repay it early. These factors should be considered as they could all have an impact on any potential future profits.

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