By Elisabeth Dobson, head of private clients, World First

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Property buyers looking to buy over the festive season may be in for a shock – exchange rates can be extremely volatile during December, January and February. Many people do not plan for or even realise the impact of currency fluctuations on foreign house purchases.

The knock on effect of the Christmas and New Year period historically sees rates vary by as much as 5% between the end of November and mid-February. This means a €300,000 purchase could cost up to £20,000 more if the exchange rate moves against you and varies dramatically from the rate first used to calculate the cost of buying abroad. An extreme example is that a property valued at €300,000 would have cost £244,160 in November 2008 but the same property would have cost £287,081 at the start of January 2009. This is an increase of a massive £42,921 and all just down to exchange rate moves!

Of course there’s also the possibility that rates could move favourably for UK purchasers. However the exchange rate risk at this time of year is huge. Undoubtedly a number of Brits will be due to complete on their property purchases over the Christmas period and it is important they know the implications currency fluctuations can have. One move in the wrong direction and a dream property can climb out of reach if the price moves outside your budget.

Here at World First foreign exchange we offer a number of currency exchange services that can help clients completing on property purchases at this time of year.

Firstly, it is most sensible not to leave your foreign exchange transactions to the last minute. This could leave you exposed to the prevailing exchange rate and you may not have adequate funds to buy your property. With some of our products, you can protect yourself against negative exchange rate fluctuations.

One way of protecting yourself is with a forward contract which allows you to fix a rate for a date in the future (up to two years ahead). This means the rate and therefore the sterling cost of your property is fixed regardless of exchange rate fluctuations. Compared with the rest of the year, we have seen a rise of about 3% in forward contracts booked around the festive season.

Another is a currency option* which, like a forward contract, allows you to exchange one currency for another on a future date. However, with an option you can fix a ‘worst case rate’ and unlike a forward contract, if the exchange rate moves in your favour you can benefit from it.

These structures are becoming more and more popular especially given the recent volatility and unpredictability of the currency markets worldwide. We also offer a rate watch service which alerts our clients to exchange rate movements informing them as soon as a pre-agreed rate can be obtained. This can be risky though. If you wait hoping the rate will move favourably for you, you could run out of time and have to take the prevailing rate on the day.

If you plan ahead you can spend more time with your family this Christmas, and less time watching the exchange rates.

Have a happy Christmas from all of us at World First!

*World First is the only broker offering currency options to private clients.

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