Impact of Exchange Rates and Interest Rates Variations on Mortgages

Are you going to miss the momentum of low interest rates before buying a real estate property?

The precedent question implies tacitly that interest rates will change very soon, and if you don’t make up your mind, you might very well lose this train. Will you?

The successful conclusion of the war in Iraq (though a serious setback is the estimated 1 Billion USD per week which is the cost of the American military presence in Iraq) has started to drift oil prices downward together with a weakening dollar (Finance ministers meeting in Dubai, United Arab Emirates, called for more flexibility in the exchange rate and basically showed disapproval of countries that seek to manipulate their currency to protect their exports. That was seen as referring to a number of Asian countries in particular) which, if steady, can benefit the manufacture jobs and boost exports together with the 300 billions tax cut, can all be the early signs of the long awaited recovery of the world’s engine: the American economy.

Atlanta Federal Reserve Bank President Jack Guynn said recently that the pieces for a more solid, broad-based U.S. recovery were “falling into place”.

Surveys of business purchasing managers indicate that output and orders are rebounding. Although the job market remains weak, recent employment data implies that layoffs may be starting to abate. Despite the sluggish labour market U.S. consumer confidence appears to be holding up well, due largely to the buoyant housing market.

Guynn argued that the housing sector and consumer spending were likely to remain strong, and businesses would probably need to start rebuilding depleted inventories amid stronger demand, giving another boost to growth.

Furthermore, the Fed has made it clear that it intends to do whatever is necessary to fuel growth and keep inflation from falling to a level where deflation becomes a real threat. This implies that the Fed may 'ease' further and will maintain a comparatively relaxed monetary policy for longer than normal. Although downside risks remain, the economic and the market outlook are somewhat brighter than a few months ago.

Perhaps the following chart will summarize the optimism of an American economy that is recovering by showing basic economic data beating expectations:

Economic report	Actual	Expected
Retail Sales [July]	1.4%	0.9%
Housing Stars [July]	1.5	-1.7
Industrial Production [July]	0.5	0.2
Exports [June]	2.4	0.5
Core CPI* [July]	0.2	0.1
*excludes Energy and Food Data: Business Week, MMS International

As to Europe, although their economies remain a bit sluggish due to a lagging growth in Germany (main economy of the Euro zone) however the European benchmark, MSCI Europe, rebounded 20.52% from the first quarter 2003 and will surely pick up with the American momentum.

Now why all our attention on the American economy? The answer can be resumed in the following popular saying: “When the American economy sneezes the rest of the world catch a cold.”

The logic is quite simple, a healthy economy is one with a moderate inflation (and not the almost deflationary economies of the U.S. and Europe) and signs (though still weak) seems to point to a recovery while interest rates seems to be picking up (refer to chart 1).

With interest rates historically low, but that has started to pick up, seems that it’s the right time to use the leverage that real estate investment offers and purchase a property.

ü France is in the heart of Europe enjoying easy access to all the major European capitals;

ü France is a founder member of the Euro zone, and as such, benefits from a strong and stable currency.

ü Rental Income and Capital growth in France is strong and has not been largely affected by the decline seen in the U.K. real estate market for i.e.

ü We can arrange with a French bank a 20 year- 4.65% fixed rate mortgage- which is very competitive if compared to Sterling Fixed Rate below:

At the moment, some of the attractive options are:	2 years fixed GBP 3.59% p.a.	These fixed rate funds do get booked and therefore exhausted quite quickly, so interested mortgage borrowers should act promptly.
	3 years fixed GBP 4.40% p.a.
	5 years fixed GBP 4.49% p.a.
	7 years fixed GBP 4.99% p.a.

ü We can arrange mortgage up to 75% of LTV which will only be activated once property is delivered.

ü Most lenders will ask that Rental Income be 130% of your monthly mortgage payment, which is NOT our case, thus we can arrange a mortgage where your monthly mortgage payment will stand at 76% of rental income.

ü An insurance policy will cover you against unpaid rent, vacancy, damages and give you a comprehensive legal cover and all is entirely deductible from your monthly rental income.

ü You can choose between villas or apartments in Ile de France (outskirts of Paris), the Rhone Alps (Geneva Lake region) or the French Riviera (Nice, Cannes, Antibes).

ü Prices between 100 KD and 700 KD per month depending on the number of bedrooms. (Please refer to attached quick price list).

ü Because real estate investment is solid and safe, based on a tangible asset which is one of the best gifts that your children can inherit.

So if you still didn’t buy your ticket, do it now, and take a train ride with PiP to France!