Courtesy of Moneycorp
When buying a property abroad in a different currency, the price that you finally pay could be slightly different to that initially agreed. This is because you are exposed to exchange rate fluctuations, which could affect the final price and drastically impact your budget.
To illustrate this, let’s take Mr and Mrs Sutton’s recent experience. Last November they had their offer accepted on their dream property in Burgundy for the sum of €540,000.
At the time of signing the compromis de vente (agreement of sale) and paying the 10% deposit, on November 8th 2012, the Suttons exchanged their Sterling at a rate of 1.24. Completion of the purchase was scheduled for February 1st 2013, when the Suttons were due to pay the remaining balance.
But, in January 2013 the GBP/EUR rate dropped, and a couple of days prior to the purchase they had to buy their euros at a rate of 1.13. On the day the purchase agreement was signed, the price of their new home in Burgundy was equivalent to £433,386. However, in the end, the Suttons had to pay £476,610 – a not insubstantial difference of £43,224.
What could the Suttons have done to avoid this?
Contact a foreign exchange specialist company with plenty of time in advance: If you start seeking guidance days before your transfer has to be made, you leave yourself little room to make any actual savings on your transfer. So the sooner you contact an exchange specialist, the more time you have for your transfer and the more options you have on foreign exchange, meaning you’re more likely to enjoy a saving on your transfer.
You can start getting familiar with exchange rate movements either by speaking to your account manager or by receiving currency updates via email. Being kept up-to-date will help you when the transfer needs to be made, as you will be familiar not only with the rate, but also with the different options available you have to buy your currency.
The Suttons transferred their deposit with the bank and they did not talk to an exchange specialist, such as Moneycorp, until a week before completion. Unfortunately by then, it wasn’t possible to secure them a better rate for their deadline.
Discuss your requirements with an account manager: Once you have had an offer for a property accepted, talk to your currency specialist about the amounts that you have to transfer, as well as your deadlines. For those who have a completion date in the future, there are two options to keep within the initial budget:
1. Forward Contract: It allows you to fix your rate for up to two years by paying a 10% deposit. This is ideal for those who want to take advantage of a favourable rate or those who need to have certainty on the final cost to make sure that the property is affordable. This would have been a good option for the Suttons as at the time of signing the purchase agreement, the GBP/EUR rate was excellent, which unfortunately they missed out on locking into.
2. Market order: For those who do not think the exchange rate is favourable at the time of purchase, you could put an order in the market with the view to reach a target rate, for example to buy euros if the rate gets to 1.23. You could use a rate tracker with your market order, which will notify you when the exchange rate reaches your target and can then automatically carry out the trade, effortlessly getting you a better rate.
This is ideal for those who have time to spare and have good reason to think that the market will move to their advantage. To protect yourself, you could complement this option with a stop loss order, which allows you designate a rate below which you cannot afford to buy your euros, e.g. if the rate goes below 1.18, buy euros.
As a limited offer Moneycorp offers free transfer fees for life to French Entrée clients that open a trading facility. To register with Moneycorp please click here . This does not involve any cost or obligation plus the account can be cancelled at any time.
Should you want to receive more information about the services of Moneycorp you can contact them on 020 3773 6355, please remember to mention FrenchEntrée to benefit of the above offer. Alternatively you can click here and submit an enquiry.