By: Luke Walden, FX Expert, Godi Financial
Every year, thousands of hard working individuals finally take the plunge and purchase their dream holiday property. The end goal is to be sitting with a cold drink in the sunshine around the pool, but the process leading up to that point is far from plain sailing. Finding the right property in the right location is just the start. Once it comes to parting with your hard-earned cash, that’s when there are some potentially costly pitfalls to consider.
One of the main issues – but ironically overlooked by so many – is the value of Sterling against the local currency of the property purchase. Prior to Brexit, this issue was brushed aside and, maybe rightly, not considered a major issue per say. Using the Euro as an example in this article, Sterling was as strong as it had been prior to the referendum, and not a million miles away from all-time highs. Times were relatively good for UK buyers of properties in Europe.
Cut to 24th June 2016 and the landscape changed, overnight, by around 10% and within 4 months, 15%. In simple terms, a property in Spain was 10% more expensive than it was a day earlier. A quite staggering movement in such a short space of time. Suddenly more and more people started taking notice of the currency markets especially when their summer holidays were becoming a lot more expensive than the year before. Indeed, only recently many UK bureau de change outlets weren’t willing to hand over one Euro for a Pound. Levels not seen since the financial crisis in 2009.
The good news is there are methods and tools to protect individuals from currency movements and reduce the costs involved when making overseas payments.
For the month of September 2017, Sterling has seen an impressive turn in fortunes down in the most part to the Bank of England signalling that they will soon be increasing rates to combat rising inflation. This has helped overseas purchases, but it must be pointed out that the Pound is still 5% lower now than it was at the start of the year. In real terms, that means a €250,000 property in Spain would have cost £212,000 in January 2017 as opposed to £231,500 at the beginning of September and £222,000 right now. A huge swing in price that can’t be ignored.
So how can this be managed? Well there are three angles here:
- Firstly, it’s imperative you find a reputable and reliable FX broker to facilitate the currency transfer for you. FX brokers, like Godi Financial, can secure vastly better rates than your bank making sure that as and when you need to make the transaction you will be saving the most amount of Sterling possible. It’s important to do extensive research in to the business to make sure they are appropriately regulated.
- Secondly, once a timeframe for purchasing the property has been agreed, speak to the FX broker about ‘fixing’ a rate for a date in the future when the purchase date is known. This allows the buyer, when agreeing a price for the property, to calculate how much Sterling it will cost and not have a potentially nasty surprise come the purchase date. It shouldn’t be complicated but rather very easy to implement. A reputable FX broker can walk you through these steps effortlessly.
- Thirdly, there is very often ongoing payments after the completion of the purchase for the upkeep and maintenance of the property. These payments can also be managed in a similar vein by fixing the rate for periods of time allowing the buyer to continue managing and protecting their FX exposure. At the very least you should continue to receive the best rates from your FX provider on the monthly individual payments. A knowledgeable and personable FX broker can again help with this.
Hindsight is an amazing thing and no-one can accurately predict where the currency markets will be trading in a week, a month or in 3 months’ time. But by locking in rates at the time of agreeing a purchase will eradicate the worry and concern of any unforeseen market movements. It also allows the buyer to budget effectively, knowing at the start of the process how much the property will cost in their local currency and planning accordingly.
Buying a dream holiday retirement home is stressful enough. Making sure to follow the easy three-step rule will hopefully allow it to be a slightly more enjoyable experience but ultimately protective of the buyer’s finances throughout. Here’s to that drink beside the pool.
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This review can help you better understand the effects of exchange rate fluctuations when buying or selling property abroad.
The no-obligation currency strategy review includes:
- An assessment of your foreign exchange risk and cash flow.
- A price comparison versus your bank or current foreign exchange provider – this is a useful way to uncover the true cost of FX transactions and any additional & unnecessary fees charged.
- Recommendations and strategies to help to reduce your currency exposure.