Buying A Property Abroad
For most of us, there’s no bigger purchase than buying a property. The sheer cost of the purchase makes the process a difficult and delicate transaction to complete. With many factors to navigate, it can easily become a very stressful experience for all involved. When looking to buy property abroad, you have all the same issues and obstacles to deal with.
However, when it comes to finances, you will agree on a price in, say, euros when buying in somewhere like France or Spain, but what it will cost you in pound sterling will consistently fluctuate from the moment you check the exchange for the conversion amount. With the exchange rates moving all the time, the amount you will need to convert will change a little or a lot on a daily basis.
Exchange Rates and Buying Property Abroad
From the moment you have an offer accepted on the property you wish to buy, it is unlikely the purchase will be completed for at least 3 months once all legal issues have been completed. This can be even longer if you are part of a property chain. Therefore, the conversion rate available at the start of the process is almost definitely going to be different than the one that applies by the time you come to complete the purchase. A difference of 3-5% is not uncommon over a 3-month period. If this move is in your favour, then it is great news, as it is a significant saving on a huge purchase.
However, a move of 5% against you will have costly ramifications, potentially adding hundreds, if not thousands of pounds (or whichever currency you are holding) more to your purchase. Pound sterling lost 5% value against the euro between March and June 2022. GBP suffered a loss of over 7% against the US Dollar in the 3-month same period. A 5% shift in the exchange rates could easily add around £10,000 to a property purchase of €236,000.
If you are in a fortunate position and have all the finances in place, and you wish to secure the currency as soon as you have an offer accepted you can purchase the currency you need and pay in full via spot contract.
However, in many instances, you may not have all the funds in place straight away to secure the currency you need. Or maybe you do and would prefer to keep the money in your bank account accumulating interest for as long as possible. However, you would also like to avoid the risk of the exchange rates going against you, increasing the overall cost in pounds. This is where a forward contract is a perfect option to consider, as it eliminates the risk of having to pay more for the property which you already committed to and agreed a price on, but just in another currency, fluctuating in value daily.
By using a forward contract, you can secure all or some of the currency you need, at the current exchange rates. Full payment is not required within 2 working days like a spot contract. You will only need to pay a deposit normally around 5% of the full balance - within two working days. The remaining balance will then be paid at a later date, as outlined on the forward contract. The currency is secured and the exchange rate fixed for up to 12 months, allowing plenty of time for the property transaction to be completed. You just need to know you will have the remainder of the funds in place by the date you choose when setting up the forward contact.
Using a forward contract to secure your currency exchange is an option only available when using a specialist currency broker like Escape Currencies. It is not an option generally offered by High Street banks. As specialist currency exchange providers, forward contracts are a standard option available to all of our customers using our services for international payments, and most importantly the exchanges rates offered by us are highly competitive on all forward contracts in keeping with all the contract options we offer.
There are never any additional fees or costs to consider when using a forward contract, as long as you have the required initial deposit amount, which comes off the total balance you will settle. 100% of the funds will be exchanged into the currency you need upon completion. We offer over 50 different currencies which can be used against each other on a forward contract, so wherever in the world you are buying or selling a property, securing your currency exchange using a forward contract is always a great option to consider, removing the risk of currency exchange rate fluctuations adding financial worries to the buying process. Be sure to sign up and speak to our account managers at Escape Currencies if you are in the process of buying a property abroad.