Foreign Perspectives

For personal reasons I’ve ended up pretty much commuting between the UK and France over the last three weeks or so and it’s left me with a backlog of both e-mail and post like you wouldn’t believe.

What’s slightly depressing about this is the speed with which I’ve been able to make serious inroads with the backlog thanks, of course, to the massive amount of it that is junk mail. It’s going to be a longer slog with the post though as it’s not nearly so easy these days to identify what’s junk and what’s real stuff.

Still, at least I can see the bottom of the junk e-mails for the moment.

When you look around in a new country you generally bring all your preconceptions as to what a bank is with you.

Typically, the assumption is that a financial organisation is a bank if it issues credit cards, debit cards and cheque books whereas it’s a building society if it largely confines itself to savings accounts and mortgages. Of course, in many countries such distinctions don’t exist 100% of the time and there’s usually something of a graduated scale between building society and bank in most countries these days.

In fact, a more realistic distinction these days is probably based on size (however that might be measured) and perhaps the extent of international activities. So, for example, although most people would call the likes of the Halifax in the UK a building society in fact in both legal and practical terms it has been a bank for many years. For example, it has been issuing cheque books since the first world war if not before and has had international activities for a substantial time too.

On the other hand, the various Credit Agricoles in France are clearly in the building society camp. Yes, they issue cheque books but their debit cards aren’t run by themselves and their international activities are nil, at least as far as the regional Credit Agricoles go.

Spain by contrast has the fairly substantial La Caixa which is a savings bank in name only although with few international activities up to now.

Rental prices tend to lag the corresponding rises in house prices, essentially because rental contracts are generally 6 to 12 months in duration.

With the incredibly strong rise in house prices in Northern Ireland over the last year to 18 months it could only be expected that the rents being asked for would make a move after the customary time lag. Now, the house prices have levelled off at the moment but that’s not stopped the rents starting to shift upwards.

For example, in one estate which we have a vested interest in, a typical house was £130k in September 2006 vs £225k now. The increase in rents being asked is also heading upwards over that time from a typical £425 last year to £495 now. So far that’s only a 16% rental increase compared to the 73% price rise but I suspect that it’s merely a taster of things to come from the landlords as they test the water for reactions to that rise. Certainly if the prices of the houses resume their progress upwards I would be surprised if there wasn’t a certain amount of catching up happening this time next year with the rents.

Not so long ago there were all kinds of restrictions on transferring money abroad due to currency controls that lots of countries had in place. They’re almost all gone now and it has become more of a natural thing for “ordinary people” to need to transfer money abroad.

Most of the time it’s due to holidays, of course, but an increasing number of us are becoming small scale international jet setters with homes in more than one country and with both of those come a need to transfer money abroad.

Holidays usually involve a different category of currency conversion in that you are on the spot when you need the money, the amounts involved are smaller and you probably don’t have a local bank account. However, whilst the amounts may be smaller individually, added up over the years they will come to quite a hefty sum. Also, many of those who holiday in the same country each year may be considering the purchase of a property there and so have that local account too.

Most people ignore the costs of all those international transactions to their detriment. One friend of mine found that almost 10% of his entire salary was going in such bank charges simply because he was living abroad and using his “home” account in exactly the same way that he always had ie lifting small amounts frequently.

Saving money on those transactions is usually fairly easy. If you don’t want to change your bank, check out exactly how they charge for use of credit, debit and cash cards abroad. You will usually find that debit and cash cards are more economic ways of getting cash than credit cards are in that you won’t be paying interest on the money. However, that’s not to say that they are cheap. Typically a withdrawal of £100 in the local currency will cost you £4 to £5 but note that this includes a fixed transaction charge so withdrawing £20 will cost you around £2 ie 10% whereas £200 would be about £7 ie 3.5%. You can eliminate these charges altogether if you use the UKs Nationwide Flexaccount as it has neither transaction fees nor foreign exchange charges.

It’s slightly better if you buy things, usually. Using a typical Mastercard or Visa card will only incur the foreign exchange charge ie buying £100 of goods will cost you £2.75 and that £20 item would be 70p. Therefore you should buy things with the card directly rather than lifting the cash to pay for them.

What about larger amounts ie if you’re living abroad or have a holiday home abroad? Well, if you follow our advice and get the Nationwide Flexaccount you can lift £500 per day which means that it’s quite viable to use that card in conjunction with a local bank account to transfer amounts equivalent to several thousand pounds. You certainly couldn’t buy a house in that way but it’s enough to fund the payments for electicity bills and the like.

If you are talking thousands, then the usual way is to ask your bank to do a SWIFT transfer. This will cost around £25 plus there’s a currency exchange charge (which isn’t widely available). However, that too can be eliminated in some circumstances. For example, if you bank with HSBC then you can do free transfers to an HSBC account elsewhere in the world but the HSBC Premier account that you need to avail of this costs £20/month (unless you have £50,000 or more on deposit with them) so it’s not as useful as it first appears. However, if you are buying in Spain, the Halifax run to a free account which offers free transfers from Halifax UK accounts to Halifax Spain ones. What’s less obvious is that this route gives you a pretty much free way from pounds sterling to euros anywhere in Europe as banks are required to transfer euros at the same level of charges in other European countries as they do domestically ie to get euros in an account in France, you could transfer from the Halifax UK to Halifax Spain and from there to a French bank.

Other options include the use of the specialised money transfer services such as HiFX (there are lots of similar services around.

Perhaps one of the most interesting developments in the mortgage market in recent years is the arrival of chequebook mortgages. That’s “interesting” in the Chinese sense of the term in their curse “may you live in interesting times”.

A key aspect of a mortgage is that it’s a very, very long term committment. Typically the term is at least 25 years over which time untold numbers of changes to your life and lifestyle can take place. Children can arrive, grow up and leave home over that time, interest rates can go from 5% to 15% to 5% (and have done exactly that in the past), the area in which your house is in can even go from “up and coming” through “marked for demolition” and back to “attractive” (which has happened in areas of Belfast). That’s just the changes that can happen to anyone.

So, as I say, the arrival of chequebook mortgages is “interesting”.

For one thing, 25 years is so long that you just don’t think about arriving at the end of such a period and that, for a mortgage product, is a fatal error to make. Chequebook mortgages actively encourage that kind of thinking in that they effectively give you an overdraft of perhaps £100,000 or even more. It’s all too easy to spend that on the day to day things and find that you’ve absolutely no way to cover the final mortgage payment 25 years down the line.

Ah, but you’ll look at your statements all the time, won’t you? Many people don’t but even for those that do, that 25 year period is just too long to appreciate the problems that can befall you by spending just a little bit too much as you go along.