Monday, 24 April 2017

French election result helps the euro

Despite UK retail figures coming in well under the predicted level on Friday morning, the pound still managed to finish the week trading around 1.5% higher against the euro, the first time the GBP/EUR cross has ended a week above €1.19 since 16th December.

The latest retail numbers did initially dent sterling’s value, however the GBP/EUR cross quickly rebounded, with the pound still benefitting from Theresa May’s surprise election announcement last Tuesday and investors treading carefully ahead of yesterday’s French election.

GBP/EUR graph before the French election

As Friday drew to a close the euro was edging lower across the board as markets prepared for the first round of France’s Presidential election. Although Friday’s polls suggested Emmanuel Macron was leading the race, it seemed investors were concerned about far-left candidate Marine Le Pen gaining momentum following another terrorist attack in Paris during the early hours of Friday morning.

However, last night’s election result has seen the euro strengthen across the board with the GBP/EUR cross falling two cents after the markets preferred candidate Macron finished ahead of Le Penn in the first round of voting.

With the euro strengthening the GBP/EUR cross fell from €1.1950 to €1.1757, while EUR/USD broke through the $1.08 barrier and is currently trading at €1.0845.

GBP/EUR graph after the French election

For the past few months the polls have shown Len Pen leading the way, but Sunday’s result now puts Macron as clear favourite ahead of the final vote it two weeks’ time.

Despite the fall for GBP/EUR it is not all doom and gloom. The pound is still trading around four cents higher than a month ago, and yesterday’s move only takes us back to the levels we witnessed before Theresa May’s election announcement last week.

Sunday, 23 April 2017

Understanding fees (honoraires)

One of the most talked about subjects concerning house purchase in France, are the fees, both the size of the fee and who pays them.

If you are purchasing through an Estate Agency it is worth pointing out that whoever pays the commission, (seller or purchaser), the price of the property remains the same. The price is determined by the mandat de vente, and this specifies 3 figures, a price net to the vendor, the amount of the commission, and the price including the agency fees, or marketing price. This was formerly shown as FAI, but is now more correctly HAI (Honoraires d’Agence Inclus).

Some purchasers think that if the seller is paying the commission they are saving money, (if only), and some sellers think that it is a burden on them to them to pay the commission, (again not true). If the seller is to pay the commission then it because the mandat de vente is signed with an inclusive price and the commission will be deducted from the sale proceeds.

Many agents use a vendor paying the fee mandat to hide the amount of commission from their advertisements. Unless the sales details clearly state the amount or percentage of the fees, then it is likely that the property is being sold using a vendor fee mandat. The alternative is that the agency is not complying with the letter of the law. *

You might be fooled into thinking that it doesn’t matter about the wordings on the mandats, but you would be wrong! Below is an example that I have just shown a client, highlighting the difference between what a buyer would pay purchasing through us, against another agency also selling the property :

Allez-FrancaisOther Agency
Price to Vendor350000350000
Fees paid by Buyer21000
Fees paid by Seller24000
Price HAI *371000374000
Notary fees estimated2600027700
Total Price397000401700

In this case, our fees are slightly lower, but the important factor here is that because the other agency is using a “vendor mandate” then the Notary fees and stamp duty are calculated on a higher figure also, 374,000 in this case, rather than 350,000. Previously, it was common practice by some agents in the case of the purchaser paying the commission to get the buyer to sign a Mandat de Recherche with the Estate Agency. The aim of this practice was to reduce these legal costs. This practice is now illegal.

So, as you can see, a bit of knowledge is a powerful tool. Check the ads and make sure you understand who pays the fees – you could save several thousand Euros.

*Since 1st April 2017, agents have to show clearly on their website and in their offices, their “bareme” or scale of fees. Ours is on our home page. In addition, advertisements must specify the amount of fees payable where the buyer is paying the fee, but this does not apply where the vendor pays the fee.

Monday, 3 April 2017

Brexit, Currency and Clouded Thinking

The debate surrounding Brexit is largely informed by confirmation bias, which is a tendency to search for, and interpret information, in a way that confirms one’s pre-existing beliefs. Those that voted Remain may bury themselves in the pages of the Guardian, BBC or Independent that give warnings of economic doom and nurture the idea that the whole thing can be undone. It cannot.

Equally those that voted to leave may ignore the pitfalls of leaving the EU, including information and evidence that leaving the EU will be bad for the economy, viewing Brexit through rose tinted glasses, the Telegraph, Express or Daily Mail. Again, any good news is seen as defying ‘Project Fear’ when actually, the true cost and effects of Brexit on the economy are unknown, and will remain so for some time.

The reality is that there will be both positives and negatives; whether the positives will outweigh the negatives remain to be seen, and we have a few years to wait before we know what the UK economy, and our relationship with the EU, will be like once we leave the EU in 2 years. Only then will we all know whether the benefits will outweigh the costs in the long term. A Conservative MP last week recalled the words of Sir Francis Drake in wishing Theresa May good luck and fortune in the negotiations, that I thought apt: “There must be a beginning of any great matter, but the continuing unto the end until it be thoroughly finished yields the true glory.”

The negotiations will be bitter and will focus on both the exit terms and interim agreement on trade, before a final trade agreement is reached, that may well take longer than 2 years. The veto that the EU have given Spain over Gibraltar illustrates how one issue can jeopardise the entire unanimous agreement we need to get a deal. While the negotiations are ongoing, Sterling will be susceptible to commentary that will be coming from the UK government and the EU, and any indications as to how the negotiations are unfolding will likely have a big impact on the value of Sterling against other currencies. If you think that the last 9 months were volatile for the currency markets, brace yourself, as the next 2 years are likely to be even more so. Let’s hope that the both the UK & EU abide by Article 8 of the Lisbon treaty that is in the interests of both parties: “The Union shall develop a special relationship with neighbouring countries, aiming to establish an area of prosperity and good neighbourliness, founded on the values of the Union and characterised by close and peaceful relations based on cooperation.”

Confirmation bias can also be seen when our clients make very important financial decisions regarding fixing an exchange rate. A client that needs to buy a large amount of Euros, for a property purchase for example, will obviously want the exchange rate to go up. They may then search the internet and read news reports for information that validates their hope that this may happen. In exactly the same way, a client that needs to convert funds back to Sterling will give more weight and credence to anything that suggests the Pound may weaken while filtering out any information to the contrary. It’s natural to want to make the most of your currency but with this bias subtly affecting your decision making, it may not be the best way to go about it.

It’s here that Foremost Currency Group can help. We don’t only offer exceptional rates of exchange, we offer a full consultative service to help understand your requirements, time-frames and attitude to risk, to be able to explain the different options you can consider. When you need to exchange currency your decision process is likely driven by your heart and not your head. Our expert brokers do not have the same emotional attachment to your trade, and can therefore provide a clearer view of what is happening based on facts, not hope. In this way you can ensure that confirmation bias is not working insidiously inside your mind, potentially skewing your view on the timing of your trade.

Written by:
Alastair Archbold
FX Manager - Foremost Currency Group
T: 01442 892 066