By Elisabeth Dobson, Head of Private Clients at World First
Small shifts in foreign currency exchange rates are common and happen in short spaces of time. However, over the past few days (article written September 17, 2009) sterling has dropped off steadily by over 2%.
If you have entered into a contract to buy your property abroad and before you’ve paid for it the exchange rate shifts to go against you like this, it effectively increases the sterling cost to you.
For example, last August a house on the market for €250,000 would have cost you £194,850. But at the moment it would cost you about £222,301 – an increase of £27,451 in a matter of weeks.With the pound as volatile as it is against particularly the euro and the dollar, these top tips should help if you are in the process of or are planning to buy a property abroad:
* Plan ahead with a forward contract
A forward contract 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 moves.
* Book in a currency option
A currency option, 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 rate moves in your favour you can benefit.*
* Set up your euro mortgage
If you choose to finance your purchase through a euro mortgage, a broker will also be able to help you fix the exchange rate for your monthly repayments. You can fix your payments up to two years ahead. By fixing the exchange rate you know exactly what your monthly commitment will be in sterling terms. A broker can also introduce you to a number of international mortgage providers.
* Delay your completion date
By putting off the final date on the purchase it could allow sterling to recover, thus making the property more affordable.
* Re-negotiate the price
If the exchange rate will mean that the property will cost you more than you budgeted for, discuss the price with the property sellers.
* Fix a firm order
Place a firm order to buy a set amount of currency at an agreed rate. If the level you set is achieved, the currency will be bought automatically. Therefore you don’t have to worry about watching the rates constantly. Elisabeth Dobson, of foreign exchange broker, World First warns, “Don’t leave your foreign exchange transactions to the last minute. It could leave you exposed to the prevailing exchange rate and you may not have adequate funds to buy your property. By using a foreign exchange broker like World First, you can protect yourself against negative exchange rate fluctuations. The options above are becoming more and more popular especially given the recent volatility and unpredictability of the currency markets. Forward planning will ensure your property purchase can go ahead as planned.”
Expat Focus is pleased to offer the services of World First at unbeatable exchange rates (best exchange rate guarantee) and no commission – please use our foreign exchange currency transfer form.