Every year, thousands of overseas property buyers proceed with their purchases, oblivious to just how much impact the exchange rate is having on the cost of their dream home, according to a new report from currency and overseas property specialist, Smart Currency Exchange.
As exchange rates ﬂuctuate on a minute by-minute basis, these can dramatically affect the price of the property. If exchange rates change during the purchase process, the price could change signiﬁcantly, even taking it beyond budget.
David Comber, a trader at Smart Currency Exchange, has seen this problem time and again, particularly with fluctuating sterling rates affecting property purchases outside the UK. He shares his top five currency tips and 'tricks of the trade' for a smooth overseas property purchase:
1. Understand the consequences of currency ﬂuctuations
For example, a couple set their heart on a €250,000 property in Spain. When they ﬁrst looked at the property, the available exchange rate was £1/€1.1807. If they were to buy it there and then, it would cost £211,738. As often happens in the property market, unforeseen circumstances occurred, meaning that their plans were delayed. When they were next in a position to look at exchange rates, they were at £1/€1.1624. This meant that the house had gone up in price to £215,072. They decided to wait a while, in the hope that the rates might move in their favour, but unfortunately they went the other way, ending up at £1/€1.1290.
(To see how currency rates can fluctuate in this way, and to help budget, try putting some property purchase figures into Smart Currency's forward contract currency converter, a handy calculator.)
2. For peace of mind, use a tool called a forward contract to ﬁx the property price
Not many people know about forward contracts and how they can be used to avoid losing money when purchasing overseas. Forward contracts help remove the risk involved in buying abroad by helping to lock in exchange rates at the point that you commit to buying a property. Through using this technique, when the time comes to transfer the final balance for the property purchase, the currency rate remains the same, regardless of how the markets are moving at the time.
3. Don't wait to set up an account with a currency specialist – the sooner you act, the sooner you can get access to valuable market guidance and current exchange rates
If you know that at some stage in the future you will have to transfer money abroad, and are considering using a currency specialist for the international transfers, it's important to sign up for an account and get access to a trader's guidance and the currently available rates as soon as possible. This helps with budgeting and allows the opportunity to use products such as a forward contract to set the price of the property.
4. Know your budget before you travel
This might seem like common sense, but it's easy to get carried away in viewing overseas property. By having a clear budget from the outset, overseas buyers can ensure they get the most from their viewing trips and don't waste time looking at properties that will be out of their price range. It also helps when looking at the exchange rates and deciding when and how to purchase.
5. Make use of any added extras available, like pre-funding an account for the purchase
Experience has taught us that both the speed and timing of the process is an important – and in some cases critical – factor in securing an overseas property for the right amount. This is where another very useful 'trick of the trade' comes in – the ability to prefund a client account. This goes a long way to eliminating further difﬁculties that can arise when you are in a different country, such as limitations on how much can be transferred each day, language barriers, dealing with automated switchboards, authority limits, time differences, and so on.
The full guide, A Currency Specialist's Guide to Buying Overseas Property, can be downloaded at http://www.smartcurrencyexchange.com/landing/SCE_TradersGuide.htm