How to save a fortune when you buy your french property

photo:Le Figaro
IF you're one of the lucky ones who can afford to buy euros for your new french home then do it now.

Why? Here are 7 reasons:

The euro has been gaining on sterling since it's lowest point within the last year in June 2007. In less than a year the pound has hit an all time low against the euro. With another imminent 0.5% cut in UK interest rates planned the downward trend is set to continue,

For the first time ever the euro has crossed the 1.60 dollar barrier. It has doubled against the green back since 2000. On the 8th October 2007 it was at 1.40 dollars to the euro and on 28th February this year it hit 1.50 dollars.

Figures on the US resale housing market released on Tuesday of this week reported a further 2% drop in prices leaving it in the doldrums. Usually, when America sneezes the rest of the world gets the flu.

On April 11th at the G7 Washington summit, several foreign finance ministers, with their Central Bank representatives in tow, were said to be very "concerned" about the "brutal currency fluctuations" with regard to the dollar.

On April 29th, the Fed FOMC will meet and are expected to agree on a further 0.5% cut in interest rates. Others are expected to folllow, such as the UK. On the back of this analysts expect the dollar to weaken even further against the euro.

As a general rule of thumb when the Fed or the Bank of England, for example, are focussed on interest rates we can expect to see a 1% drop in value against the euro. On the other hand when the focus is on inflation we can expect to see a gain of 1%.

Christian Noyer of Banque de France in a recent interview with RTL radio said that the current interest rate of 4% in France was appropriate and enough to bring prices back. He said that the emphasis for France would be to take infaltion back to less than 2% in the next year.

So, show me the money.

Every cloud has a silver lining. The falling pound is flavour of the month in the British press.

This has had an interesting side effect. It has highlighted how much worse off people are if they buy currency from their banks. Not surprisingly, it's not their core business or competence.

At the same time, the current press coverage has opened peoples' eyes to the fact that they get much better currency deals from foreign exchange companies.

At 13:00 GMT today the Interbank rate was at 1.2458 with Natwest offering 1.1906.

Where would you buy your currency?

The way to save money is to take out what's known as a Forward Contract from one such foreign exchange company. Some offer forward contracts that are valid for up to 18 months.

What this means is that even if the exchange rate continues to fall you secure the exchange rate on the start date of the contract.

You can also buy contracts for any increment of three months.

It's common practice for large companies to buy currency as forward contracts at the beginning of their financial year. This fixes their exchange rate and allows them to price their products for the coming year accordingly.

A sure way to lose money is to sit and wait to see what the exchange rate does in the hope that sterling or the dollar will recover.

One English client of ours bought a house in December 2007. He transferred a 10% deposit shortly after signing the Compromis de Vente at a rate of 1.38. Unfortunately, he opted not to take a forward contract on the remaining 90%, convinced that sterling would recover.

It never did. He was forced to buy the remainder at a rate of 1.24. He lost £45,000.

Noone has a crystal ball but it's a commonly held belief, based on a set of tangible indicators, that neither the dollar or the pound are likely to gain any significant ground against the euro before the end of the year.

In fact, some believe that sterling will continue to fall to at least 1.20.

Even if you have decided to postpone your house purchase in France for the time being because of the underperformance of sterling it may still make sense to buy euros now and buy property much later.

Remember, the currency markets are extremely volatile. We tend to talk in terms of the rate on a given day but in fact it can fluctuate at invervals of 0.5 of a second in response to market events.

What next? We suggest you start here.