Raising Finance

[Leanne]

Hi

We are buying an established and successful B&B and gite business in The Dordogne. I do not actually need a mortgage or loan as the purchase is being financed by the sale of my home in the UK. However, as you know the exchange rate is pretty poor at the moment, so we are considering financing it with a loan in Euros and then transferring the funds from our house sale and paying the loan off, once the exchange rate improves.

I do not have any accounts to show apart from those of the business I am buying, but obviously have collateral in the form of my house in the UK and would also have enough for a deposit.

As it is a commercial business it seems we can't get a French mortgage, and as we have no UK accounts to show, this makes things even more tricky.

Does anyone know how we might be able to raise cost effective finance for the purchase?

Many Thanks

Leanne

[pomme]

That is a big assumption. Don't forget the exchange rate improvement would also have to cover your loan and interest expenses, etc. so it could be a long wait (unless France falls on its euro sword).

Is the business, given the location, based mainly on having UK visitors? They might be more reluctant to visit with the current exchange rate. You might need to lower prices to compensate which could impact the whole business case.

[NormanH]

Don't rely on the exchange rate in either direction.

At the moment

http://www.independent.co.uk/news/business/news/brexit-pound-sterling-hedge-fund-bets-eu-referendum-effect-economy-a7192251.html

but of course the effects of Brexit on the Euro economies hasn't worked though yet.

In other words no-body knows.

[alittlebitfrench]

Apparently tourism was down 15 % this year in France. The most successful tourism businesses this year were camping sites.

A top French terrorism expert was reported as saying that France is going to have a tough time in the next couple of years with a lot more attacks as French ISIS types return from Syria and other such places.

It will only take a couple of terror attacks and tourism in France will be savaged.

Are you sure you want to do this ? Tough times ahead.

I would ask why an established and successful gîte business is up for sale ? An established gîte business without the current person running it is just a large house and some outbuildings. Are really buying a business ? I am not sure gîte businesses are valued as such.

[Gluestick]

[quote user="NormanH"]Don't rely on the exchange rate in either direction.

At the moment

http://www.independent.co.uk/news/business/news/brexit-pound-sterling-hedge-fund-bets-eu-referendum-effect-economy-a7192251.html

but of course the effects of Brexit on the Euro economies hasn't worked though yet.

In other words no-body knows.

[/quote]

Unfortunately, thanks to Government weakness in the UK and USA, particularly, Forex (Foreign Exchange) markets are rife with blind speculation. Which was precisely one of the founding precepts and tenets the IMF was meant to regulate and control. When speculation against a currency takes place, then the IMF are meant to step in and coordinate member's central banks, to buy up the currency under attack in huge quantities which automatically drives up the price.

However, since the whole matters of money and markets have been dominated, now, by venal bankers and traders this has become a very corrupt area: including rate fixing by conspiracy for profit.

Please See:

To make matters much worse, since the Euro itself is an artificial construct which bears little relationship to reality, the CEO of the IMF is French (Lagarde) and indeed, the IMF itself recently shouted mea Culpa!

See here:

Currency values are adjudged, today, by underlying economic stability or weakness: this is the main difference between a currency based on valuable specie (Gold e.g.) and the contemporaneous "Fiat Monetary" system.

If one carefully examines and evaluates the core metrics (the economic reference points), Britain is far ahead of most of the Euro members, in areas such as unemployment, GDP growth et al. Indeed, Italy has tax revenues, uncollected equating to more than one year's revenue! Their banks are on the edge of collapse. Spain, Greece, Portugal, Cyprus etc are basket cases.

Germany is now increasingly suffering from Mad Mutti Merkel's migrant insanity and the attendant fiscal costs (i.e. government spend obligations) are mounting...unemployment, social benefits, health care etc. Furthermore, Germany has not, as yet, digested the costs of the reintegration with East Germany.

Additionally, The Bundesbank (Germany's Central Bank) is on the rack,

for horrendous guarantees and warrants issued to the ECB to guarantor

the Euro.

Most important of all, Britain's Post-Brexit separation from the EU has not, as yet, happened! Nothing has changed. Ergo, the metrics currency speculators are basing their negative values upon are simply a cross between atypical Lemming Instinct and venality.

Still as my American friends are wont to say, "It aint all over 'till the fat lady sings!"

Many market corrections shortly, I believe...

What the OP is considering, would be incredibly dangerous: wait until you have the capital liquid and then think again, is my suggestion. The other comments on the viability I wholeheartedly agree with.

[mint]

Gluey says "what the OP is considering would be incredibly dangerous"

Agree completely.  You could lose most if not all of your capital.  And I am assuming that you could even find any bank, finance institution to lend you the money in the first place.  If they do advance you the money, you are likely to be made to pay over the odds for it, thus wiping out whatever financial advantage you might think you'd gain.

As for the gite business in the Dordogne, well, I live here and I know a fair few Brits who have these things.  I'm not going to say anything about it, for fear of offending you and thereby heaping abuse on myself and, yes, I have learned a lesson very recently[:(] about people shooting the messenger when they don't like the message.

[lindal1000]

Hi Leanne

We tried to do similar in 2008, as at the time the pound/euro was almost at parity and we needed to pay our builder. We got agreement on one level from Credit Agricole for a mortgage using our Uk savings as equity, but it was in the end rejected as the banks began to tighten up their lending criteria. We ended up working in UK a year longer to cover the shortfall caused by the depreciation of the pound, and in the end came out here mortgage free. With hindsight I'm very glad we did as it has made life very much less stressful financially. You may find a bank prepared to loan you the money, but I doubt it. You will probably just have to take the hit on the currency exchange and find another way to make up the loss.

For what it's worth, we got as much of our money out of the UK as we could the day after the vote and accepted the loss. This slump is self inflicted on the UK, unlike the last one, which was part of a global recession. The long term future of the pound is much less certain now and it really depends on what happens next.

Good luck with your venture. We know several people who survive ok on gite income, and so far this season has seen some improvement in bookings over the past few years in this area, especially from Americans and Dutch.

[EuroTrash]

As others have said, I don't think your plan is a go-er. French banks rarely lend on gite businesses; but that aside, even if they would and you did what you're suggesting, then the exchange rate would have to improve significantly for you to even break even, after the interest you will have paid on the loan, the loan insurance, plus presumably an early redemption fee, which are usually quite considerable.

[Gluestick]

[quote user="lindal1000"] This slump is self inflicted on the UK, unlike the last one, which was part of a global recession. The long term future of the pound is much less certain now and it really depends on what happens next. [/quote]

Huh?

On what metrics do you base this on, lindal?

Thus far, nothing has changed and in the forseeable future, Since May is on hurry to actuate a formal withdrawal per the terms of the Lisbon Treaty, nothing much can change!

Fiat monetary systems are based purely and simply upon a nation state's economic performance, national debt and unemployment level, as main metrics.

Soon, Carney and the Government will wake up to one singular reality: since the UK imports essentials in vast quantity and since UK manufacturing exporters (real ones: not "Screwdriver" car plants and re-exporters of good part-manufactured etc) the low Pound welcomed by a myopic few, means import costs will rise dramatically; which increases the cost of living and results in wage increase demands, strikes etc.

B of E Base Rates should be going UP ,not down!

Shortly - it takes time for reality to percolate into the thick suet-filled brains of politicians - the exchange rate costs of debt servicing Britain's national borrowing will be rapidly increasing...

Less state-funded services and higher taxes when Mr and Mrs Average are already struggling to meet their extant financial commitments.

[lindal1000]

Well you're entitled to your view Glustick and I hope you're right for savers or for people who depend on UK income.

Not sure that higher interest rates will help many of those who voted to leave though.

I'm afraid I can't wait for Interest rates to go up so my money is long gone from there!

[Gluestick]

[quote user="lindal1000"]Well you're entitled to your view Glustick and I hope you're right for savers or for people who depend on UK income.

Not sure that higher interest rates will help many of those who voted to leave though.

I'm afraid I can't wait for Interest rates to go up so my money is long gone from there![/quote]

It is not a "View" or opinion, lindall, rather careful analysis of the core economic metrics from many years involvement.

How will higher Base Rates injure Brexiteers?

The monetary system in the UK is wholly dysfunctional. base is set now @.25%: yet average mortgage rate is still circa 3%. i.e. the spread is 2.75%.

Yet consider, LIBOR: (The interbank Offer/Bid rate):

 GBP

	08-16-2016	08-15-2016	08-12-2016	08-11-2016	08-10-2016
GBP LIBOR - overnight	0.22938 %	0.22938 %	0.22938 %	0.22938 %	0.22938 %
GBP LIBOR - 1 week	0.24188 %	0.24188 %	0.24688 %	0.24688 %	0.24688 %
GBP LIBOR - 2 weeks	-	-	-	-	-
GBP LIBOR - 1 month	0.27688 %	0.27313 %	0.27938 %	0.28063 %	0.28188 %
GBP LIBOR - 2 months	0.33438 %	0.33225 %	0.33475 %	0.33850 %	0.33600 %
GBP LIBOR - 3 months	0.38438 %	0.38563 %	0.38875 %	0.38563 %	0.38125 %
GBP LIBOR - 4 months	-	-	-	-	-
GBP LIBOR - 5 months	-	-	-	-	-
GBP LIBOR - 6 months	0.50588 %	0.50650 %	0.50463 %	0.50213 %	0.50063 %
GBP LIBOR - 7 months	-	-	-	-	-
GBP LIBOR - 8 months	-	-	-	-	-
GBP LIBOR - 9 months	-	-	-	-	-
GBP LIBOR - 10 months	-	-	-	-	-
GBP LIBOR - 11 months	-	-	-	-	-
GBP LIBOR - 12 months	0.72225 %	0.72225 %	0.72100 %	0.71663 %	0.71538 %

Next consider the rates charged for bank loans, business finance, credit cards, personal finance etc.

Prior to Big Bang, banks showed the "Spread" between deposit rate and borrowing rate, particularly OD. Today, the spread has never ever been higher! venality and sheer greed.

Higher base rates will as you say, benefit savers and encourage people to save. (Britain currently has one of the lowest  savings rates per capita, in the World. Lower even than China...

Higher base rates will increase the value of sterling and thus reduce everyone's cost of living.

What's not to like?

[lindal1000]

Like I said..I hope you are right. I am not an economist but my discussions with people who are, those who deal in currencies and my brother, who is an investment banker, lead me to think otherwise.

High interest rates also hurt the lower paid. I know as I was a healthcare worker during the time when interest rates were through the roof. I nearly lost my home, was stuck in negative equity for 10 years and yes, if I could have afforded to I would have loved to save some money but there was none left to save. I am assuming that many of those who voted leave are lower paid with or without mortgages. Rents also go up when interest rates rise..at least in the UK, where there is a shortage of housing.

However if you're right then Leanne is being quite sensible in wanting to take out a Euro mortgage until the pound increases.

[andyh4]

What is not to like, Gluey?

Well everything that is sold abroad becomes more expensive - and that is not just the screw driver operations but also the services sector - finance, knowledge sharing, other services.

So the balance of trade tips more towards importing (real goods) and despite the higher interest rates, the pound falls, because the only way to hold balance is to print money (sorry nasty phrase and politically incorrect - ease quantitatively is what I should have written) . Good for the exporters but bad for imports which pushes up import prices and with it inflation. As Linda says then the poor get really squeezed - higher interest rates on their borrowings and higher prices.

[Gluestick]

[quote user="andyh4"]and despite the higher interest rates, the pound falls, because the only way to hold balance is to print money (sorry nasty phrase and politically incorrect - ease quantitatively is what I should have written) . Good for the exporters but bad for imports which pushes up import prices and with it inflation. As Linda says then the poor get really squeezed - higher interest rates on their borrowings and higher prices.[/quote]

Euro and Pound are "Fiat" currencies. If base rates rise, then a currency gains: it always been a fact.

Higher export prices? Well, did you know in the three months leading up to the Brexit vote, the UK IMBALANCE with EU states was £23.8 BILLION. (Source: ONS)

In classic textbook terms of reference, exports grow and imports shrink when a currency unit value rises. Problem is Britain has been importing far too many essentials: and exporting far too little real manufactured good.

Trouble now is one can throw away the textbook:  the Western monetary and financial systems are contrived, synthetic and deeply problematic.

For example: when the Brexit vote went on the leave majority, "The Markets Priced in" the result and believed Project Fair a nd all Dave and Gideon et al's Doom and Gloom.

Now the results are diametrically opposite the forecasts, have those same hallowed markets prices out the changes? Err,...no. However, the instant Carney dropped base rate this was, priced in!

Interest rates: if the Bank of England and Government allowed unfettered large rate rises on mortgages as in previous periods (1989/90 post the fiasco of the Thatcher-Lawson Boom-Bust), then two things would happen:

1.    The UK residential property market would "Tank": mainly since large numbers of over-borrowed mortgagors would face re-possession. On a crashed market:

2.    Unfortunately, this would simultaneously crash the whole banking system, the monetary system and the financial markets: why?

Since from around 2003, 65% of the total capital value of Great Britain is represented by residential property; that's why.

Other borrowing; similar yet not as severe, mainly since the venal bankers have been far too successful in pushing loans, credit cards and all sorts of finance.

Borrowing Rates: nothing short of usury! The "Spread" between Deposit Rates and Lending Rates, has never in British financial and monetary history, been so wide.

"Pay Day! Sub-Prime lenders such as Wonga et al, are worse than Mafia loansharks; and urgently need strict regulation and interest charge limits.

Even back in the appalling social conditions and poverty of the 1900s, The Money Lenders Act restricted by statute the interest which could be charged.

https://en.wikipedia.org/wiki/Consumer_Credit_Act_1974

Since Thatcher's vaunted Big Bang and unfettered financial chaos, lenders can act almost how they will.

Personally, I am by persuasion, a benign capitalist: however I am not a monetary Fascist and have nothing but utter contempt for them.