When considering the purchase of a foreign property it isn’t just the location and qualities of property you need to consider. Vitally important is the currency aspect so that you can understand how much it will cost you. It is after all ultimately the exchange rate you receive which will decide the true and final cost of the property, plus all other costs such as legal fees and taxes as well as ongoing running costs and living expenses.
Understanding what drives exchange rates and also the options available to manage your exposure to the currency markets is vital to managing and controlling your costs. It is no good spending months haggling on a property purchase in a foreign country, only to find that exchange rate fluctuations suddenly completely undo your hard work. Thankfully there are options to help reduce your exposure and help maximise the opportunities the market will present.
The currency markets are often unpredictable
Exchange rates can play complete havoc with overseas property buyers trying to pin down their costs. In the last year GBP EUR and GBP AUD rates have fluctuated by 12% and GBPUSD 14%. The average UK house price is £223,000 which on those three currencies would give you fluctuations of €25,000, $37,000 and $46,000 AUD if selling a standard UK home to move overseas.
Essentially you will not know exactly what your property costs you until you have purchased the currency. Careful and committed buyers of foreign property may wish to purchase currency in advance of any move or purchase, just to understand their cost.
For many, however, committing six-figure sums of life savings to currency without first having identified a property will not be an option. Many people may need to sell or liquidate UK assets too which also takes time.
There can be a long period of time between agreeing a deal or an offer being accepted and completion, during which time exchange rates can move significantly. Some countries move quicker than others, in Spain completion can be in a few weeks whilst in France it typically takes 2-3 months.
What moves the exchange rates?
Of course, exchange rates don’t move the amounts mentioned above in a very short space of time. Aside from major events like the EU Referendum or an election, daily movements on the currency markets can be as little as a quarter of a cent, a typical day can see a shift of around 1-2 cents. With key events like elections, or interest rate decisions, that have a much bigger impact you would usually be aware of these from the press. If you are looking to purchase or sell a foreign property around the time of such a big event or in the months following, extra caution and protection is very sensible.
Exchange rate shifts are a reflection of financial markets views and sentiments on economic and political developments concerning the country or economy that uses that currency. Just like no one can accurately predict what will happen in the future, nor can we accurately predict what exchange rates will be. Having said that, we can use our experience and knowledge of past events and behaviours to make informed estimates of what might happen.
Your options and getting the best rate
When considering an overseas property purchase and the currency exchange, there are two key elements of ‘getting the best rate’. Two options to consider are, the actual type of rate you receive from the provider you choose, plus the timing of the deal. There can be fluctuations in the rates offered by providers so it is no good choosing the best day of the year to buy your currency only to find if you had used the right provider you would have got a better deal.
Advice on sending money abroad
Homesgofast.com promote thousands of homes for sale and to rent listed directly by owners, property developers and from real estate agents from over 50 countries worldwide. We work with real estate and homeowners helping them save money selling homes online. We also provide, tips, guides and advice about transferring money to Australia, France, India, Spain, South Africa, USA, Ireland. Homesgofast.com also operate the #TOPFX100 index