Currency Exchange

Hannah Beecham  Wednesday, Feb 24 2010  15.07

Currency (Really) Matters

Don't let your dream property slip away because currency volatility priced you out of the bid.

When purchasing an overseas property outright, raising a deposit, or finding the money for building works, remember that until the currency has been bought and secured, the full cost to you will continue to fluctuate. Volatile currency markets can wreak havoc with overseas property purchases - if the currency moves in the wrong direction, the price soars outside your budget and your dream property climbs out of reach.

You must employ a strategy.

Beware fluctuating rates

Your decision to buy a property abroad is underpinned by its price. The price that the property is being sold for is fixed in the local currency; but the exchange rate will make the cost to you fluctuate over time. A ‘forward contract’ arranged through a currency dealer enables you to buy the currency now, by fixing a price, and pay for it later.

For example, if you wish to buy £50,000 worth of euros but do not need to spend them for three months, you can agree the exchange rate now, place a 10% (£5,000) deposit, and pay the remaining £45,000 balance in three months. If the exchange rate moves in that three month period this will not affect you at all, as you have bought the currency at a rate already agreed.

Fixing pay day

The date when the balance is due is also agreed at this time. This date can be as close as a few months or as far away as two years – useful, for example, if you are buying an off-plan property. New builds generally require several staged payments made at different intervals during the building process.

How do I arrange the foreign exchange I need?

Well, you could just go to the bank, but you won’t get a good deal there. Banks tend to offer 'tourist' rates which, at 2% to 3. 5% more than those offered by foreign exchange brokers, represent poor value. A broker will also save you commission and other bank fees including transfer charges (usually between £20-£40 for every transfer) and, depending on where you're sending the money, up to another 0.5% in overseas bank receiving fees.

You will need to find a reputable foreign exchange broker. Your financial or legal adviser should be able to make recommendations, but you’d be wise to carry out further checks by examining the company’s credentials and asking to see testimonials.

A foreign exchange broker should offer you a deal which includes free transfer of your money abroad and no commission fees.