Stephen Hughes, chief analyst at Currencies.co.uk, runs through the key considerations to make when trying to get the best currency rate for an overseas property transaction.
Whether people are looking to buy abroad as an investment, holiday home, somewhere to retire to or even to live permanently, a currency broker should be considered an equally important part of the process as the solicitor you use for your conveyancing or the agent you choose to buy through.
Even as you are negotiating the purchase price of your property in the local currency, be it euros for a villa in Spain, dollars for a condo in Orlando or Swiss francs for a chalet in Klosters, the actual price you will eventually pay in sterling changes every couple of seconds; in fact a currency’s exchange rate can change more than 40,000 times per day – and the difference it makes on big purchases can quickly add up.
When buying a property in the UK you know that, with the exception of legal fees and the like, the price that is agreed is the price you will pay. There’s no reason why you shouldn’t expect the same peace of mind when buying abroad, and this is where a currency broker or specialist foreign exchange company comes in.
They will have a range of different currency purchase options to suit your specific requirements. Options include spot contracts for immediate purchase and transfer, forward contracts that allow you to secure an exchange rate for anything up to two years ahead, or regular payment plans that allow you to finance overseas mortgages simply by setting up a standing order.
Top five tips for buying abroad:
- Always get comparative and independent quotes for foreign currency from a variety of sources before you commit to one particular company or institution, especially if it has been recommended by a third party (eg a property developer) who may have a vested interest in your transaction.
- Look out for hidden foreign bank charges, particularly when receiving money from abroad. In some cases these can be as much as 0.5% of the transaction value. Some currency brokers and other institutions will be able to help you avoid these.
- Don’t speculate. Naturally you want your currency at the best price, but don’t play the money markets. It’s not worth it; in a volatile market you could end up paying a lot more for exactly the same amount of currency as a result of adverse price movement.
- While foreign properties may be cheaper than their UK equivalents, the house-buying process can be more expensive when buying abroad. When calculating what you can afford, make sure you take into account all the additional costs, eg fees, local taxes, legal and moving costs etc.
- For property purchases with stage payments or delayed completion, consider fixing your exchange rates early thereby guaranteeing the cost of your currency through the term of your purchase (this can be anything from one month to two years).
Stephen Hughes is chief analyst at currency broker Currencies.co.uk.
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