The effect of the UK budget on the French property and mortgage market

George Osborne’s budget today outlined some major changes to UK taxation but what effect if any will this have on the market for French property from UK buyers? The headline changes from the speech are the rises in VAT to 20% and the increase in capital gains tax to 28%. At first glance both of this rises appear to reduce the attractiveness of making investments as cash flow is effected by the rise in VAT and the long term profit of owning a second property in France is reduced by the increase in CGT.

Listening to Harriet Harman’s appraisal of the budget as being unfair on those with the lowest incomes, as proportionally speaking the increase in VAT will hit there hardest, we can glean that it some way this budget is beneficial to those on higher incomes. In many ways this is right, the effect of the intended reduction of the deficit over the term of this parliament will be of benefit to those on higher incomes, as in fact it will eventually be for everyone. With regard to the French property market, usually the preserve of those on higher incomes who are least affected proportionally by the increase to VAT, the effect of a Britain living within its means will be a stronger pound, and therefore lower costs for mortgage payments, whether the payments are regular or lump sum.

The rise in CGT may deter some UK based buyers to the French property market, these same buyers being deterred in fact from almost any form of investment, if they are overly price sensitive. Just a few years ago the rate for CGT stood at 40% (with some additional taper relief benefits) so in fact the rise could have been larger but seems to have been optimised in terms of ensuring the balance of payments to the treasury increases. As the majority of investors in France look for the long term, I do not believe the rise in CGT will have much of a noticeable effect. In fact I believe that the certainty brought about by the budget will in fact allow more people to make decisions which had been delayed pending the budget.

Overall the picture looks good for the UK and the outlook for continued excellent conditions for buying French property with mortgages in France.

Posted in: French property,Mortgages in France