Secure Your Price by Fixing the Exchange Rate. Forward Contracts Explained.



Secure Your Price by Fixing the Exchange Rate. Forward Contracts Explained.

Mr and Mrs Smith were looking to buy in France and they travelled to the country at the beginning of the year. They found a lovely chateau with a price tag of €400,000 in Mayenne in the North and put in an immediate offer. At the time the exchange a rate from Sterling to Euro was close to 1.20 and so they calculated that the property would cost them the equivalent of £333,000. However when they were called to complete on the transaction and pay the price a couple of months later the rate had dropped to 1.10. This suddenly meant they had to find an additional £30,000 than originally planned for due to an adverse rate movement. Can they still afford to buy the property?

With a property purchase you are typically looking at a 3 month window between deposit and completion. It can be sooner, but likely, and especially during a pandemic, it can be a lot longer.

It is unlikely – especially with the current volatility – that the exchange rate that you had at the time of making the offer remains the same. Any changes in the market will have a direct impact on the property price agreed.

Would you buy a property in your home country without knowing the exact price you would pay for it? No you wouldn’t, so make sure you don’t do the same when you buy abroad.

Forward contracts are a tool available through currency companies. They allow you to fix the rate of exchange ahead of a future payment and up to 2 years. They are a popular option for overseas buyers mainly for 2 reasons:

  1. Peace of mind- You can fix the exchange rate once the compromis de vente is signed or at the time of paying the initial deposit to have certainty of the price you will pay for the property regardless of any fluctuations that might occur before completion date.
  2. Take advantage of a rate of movement- If at some point between finding the property and completing, the rate moves in your favour you could decide to take advantage of that movement and fixing the whole price at that rate, maximising your initial budget. If you have an account with a foreign exchange company your initial dealer can help you monitoring if the rate achieves a desirable level.

What shall I consider when booking a forward contract?

  • You don’t need to pay the full amount that you are fixing so it is an attractive tool for those whom might not yet have the full funds available. However you need to bear in mind that in order to fix the rate you will need to deposit 10% of the whole amount you are fixing. This is not a cost but just a deposit to ensure you will full fill the contract when the payment date arrives.
  • Once you fix the rate you won’t be able to change it. This means that if the rate moves even higher after fixing it you won’t be able to swap the fixed rate for the better rate.
  • If you need to cancel the contract you might incur in a loss if the market has moved against you.

The best way to plan your exchange and to understand your options is to get in touch with a foreign exchange specialist company such as moneycorp.

Opening an account is really easy and free of cost or obligation. You can register online or over the phone in a couple of minutes and for FrenchEntree there are no charges in any payment.

Why moneycorp?

With a Platinum Trusted Service Award 2020 from independent review site Feefo and 40 years of experience in the industry, FrenchEntree has been recommending moneycorp for more than 15 years. During this time they have helped thousands of client planning the best way to pay for their property as well as supporting them afterwards with any further payment from paying bills, mortgages to repatriating UK pension payments for those who have retired to France.

Mar from Moneycorp

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Furthermore, we have worked with the same person at moneycorp for more than a decade! You might be familiar with her as she often writes for our FrenchEntree magazine. She has 13 years experience in foreign exchange plus she is a qualified European lawyer with experience in European transactions. Mar will be happy to answer any questions or enquiries to support you through this difficult times.

Open a free account today by clicking here.

Contact moneycorp at 020 3773 6355

Send your enquires to Mar at [email protected]

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