by Simon Hilton, senior foreign exchange consultant at World First and official Expat Focus foreign exchange partner
After what has seemed like a never-ending winter, spring appears finally to have sprung. We’ve tasted a little sunshine and experienced some warmth and maybe, it’s just injected a little more positivity into our lives.
However, you never know when the warm sunshine will be replaced by cold rain. British summers are well known for being anything but, well, summery, and promises of barbeque summers (remember that classic) have turned out to be nothing more than a damp squib.
Maybe you’ve decided enough is enough, and are contemplating a move away to warmer climes, where the way of life is more relaxed and the weather is slightly more dependable.Another factor that may make moving abroad all the more viable – or even necessary – is the fact that house prices in the UK are so high, and the market so competitive. A recent report from Hometrack shows that 12 buyers now chase every new property for sale, and a sellers’ market has emerged, with properties being sold for an average of 96.2% of their asking price.
Figures from the Office of National Statistics have shown that house prices are rising close to five times as fast as wages.
Compare and contrast with the rate of property price increases – or rather decreases – in Europe. House prices in the UK are up around 7% in the last year, but according to the Knight Frank Global House Price Index, some of the destinations preferred by British expats have seen the cost of properties fall, or at least rise at a slower rate.
In the last year, house prices in Croatia fell by over 14%, prices in Greece were down by 9.3%, and Spain and Portugal saw drops of 4% and 0.5% respectively. Italy and Cyprus were also down, by 5.3% and 7.3% respectively, though these figures cover the year up to October.
These numbers are pretty heartening if you’re finding the pull of Southern Europe hard to resist, and guess what – it gets better. The current, continuing strength of sterling means that your money will go further when buying property overseas.
This time a year ago, the GBP EUR (pounds to euro) exchange rate was at around 1.18, which meant £200,000 was worth €236,000. The exchange rate is now at around the 1.20 mark, with that same amount now worth €240,000 – €4,000 more just because of a change in the exchange rate. Your money now buys you more, which means you end up with a better property.
But even when the currency you’re selling is performing well against other currencies, you still have to be aware that fluctuations can still cost you hundreds, or even thousands. That previous example showed you how things can change in a year, but exchange rates can also rise or fall dramatically in months, weeks or even days.
Take the GBP EUR rate on April 1st – close to 1.21. But six days earlier – on March 26th – it was down at 1.194. So when making a transfer of £200,000 to pay for a property in France, you’d get more than €3,000 less by making your transfer just a week earlier.
Despite that word of warning, the pound is generally strong against the euro right now, and if you’re looking to start afresh in the US, it’s a similar story for GBPUSD too. At the start of April this year, GBPUSD was at 1.6647, which means when transferring £300,000, you’d get around $499,500. Just a few days into February, the same amount would be worth $489,000 – $10,000 less in just a few weeks.
The comparisons are even more dramatic when you go back a year, when the GBPUSD rate was at around 1.519, with £300,000 getting you $455,700. That’s an incredible difference of around $45,000 from one year to the next, and a compelling reason not to put the move off any longer.
From these figures, it’s easy to see that when the exchange rate is in your favour, you can get more for your money, but the tricky thing is choosing the right time to strike. Unfortunately, no-one knows for sure when a currency will lose or gain value.
One way of protecting yourself against fluctuating rates is by fixing an exchange rate in advance of your transfer – what’s known as a forward contract. Some currency exchange companies will offer this service, and it’s worth considering, as once you’ve agreed a rate, no amount of subsequent movement in the currency markets can affect what you’ll pay.
So if you’ve enjoyed the taste of spring, but would like to make sunshine a more permanent feature of your life, go and get it! Now might be the time to take the plunge, as currently, the exchange rates are shining on you too.
Simon Hilton is a senior foreign exchange consultant at World First specialising in assisting private clients and companies with their foreign exchange transactions. Simon is authorised by the FSA to offer foreign currency options. Contact Simon today for a free, no-obligation currency transfer quote.
World First transacted over £4.7bn for their 40,000 clients in 2012 and have a 3A1 credit rating from Dun & Bradstreet – the highest possible rating for a company their size. As well as tailored hedging solutions designed to protect you from adverse market movements, they also offer excellent service. Winner of the Client Focus Award at the 2012 National Business Awards, they provide personal service with a dedicated dealer, and a regular transfer service, which is perfect for mortgage or rental payments.