Many of us still dream of buying property abroad. Buying somewhere overseas involves a big financial outlay but one of the things that is often overlooked is the foreign exchange aspect of your purchase.
Whether you are paying cash for your property or taking out a mortgage in the local currency, you will have to transfer your pounds sterling into the currency you will be making your payments in. How you go about completing your transfer(s) could make a huge difference to the sterling price you pay for your property.
Get clever with your currency
The Parry family from Buckinghamshire are a perfect example. They took note of fluctuations in foreign exchange rates and planned how best to use them to their advantage by taking out a mortgage in euros on their second home in France. They then transferred the cash back to the UK where, because of the weakness of the pound, their euros suddenly had a lot more buying power.
By simply keeping an eye on things and knowing how you can make exchange rates work for you can pay dividends. Follow our tips on foreign exchange when buying property abroad and you could be quids in.
Identify your budget
Setting a budget sounds obvious and it’s probably one of the first things you thought about. But remember, the price of your overseas property will differ from the actual cost of buying the property.
When exchanging large sums of money from sterling to a foreign currency, the currency exchange rate will determine how much you end up paying for the property. For example, last August a house on the market in Spain with an asking price of EUR250,000 would have cost you £194,850. By the beginning of September that had gone up to £204,580. That’s an increase of £9,730 in a matter of weeks.
Keep up with currency exchange rate fluctuations
Small shifts in foreign currency exchange rates are common and happen in short spaces of time. So during the course of a day, exchange rates are constantly going up and down.
Imagine entering into a contract to buy your dream property abroad. Before you’ve paid for it the exchange rate shifts to go against you by 10%. That means that the sterling price you’re paying will effectively increase by
10%. That could have major repercussions Read more https://www.daneshexchange.com/.
Don’t leave your foreign exchange transactions to the last minute. It could leave you exposed to the prevailing exchange rate and you may not have adequate funds to meet payments on the due dates. This could lead you to being liable for penalty payments. The good news is, you can protect yourself against negative currency exchange rate fluctuations.
Strategies for beating exchange rate movements
Doing your homework on the different foreign exchange transaction types will pay off. Foreign currency exchange arrangements include:
1. Spot transactions
If you already have the funds in place to buy your overseas property, you could arrange a spot transaction. This is simply the exchange of one currency for another at the current market price where the settlement happens within two working days.
2. Forward transactions
A foreign exchange forward transaction is a contract to exchange a specific amount of one currency for another on a future date at a predetermined rate. These can be arranged for any period from three days to two years in the future.
A deposit is required to hold the rate with the balance of the payment made on the settlement date.
3. Currency options
Like a forward transaction, a currency option allows you to exchange a specific amount of one currency for another on a future date. However, rather than setting the exchange rate you will transact at, you can guarantee a worst case scenario rate, but also benefit if the rate moves in your favour.