Avoid exchange-rate pain in Spain
DIRECTOR OF FX ADVISORY SERVICES, HIFX
I F YOU had invested £100,000 in euros this time last year, it would have bought you €120,000 – almost exactly the same amount of euros as today. Less than four months later you would have only received €111,000.
Yes, there are major problems within Europe, but the outlook is still looking very weak for the UK. Listening to the governor of the Bank of England this week, it looks like interest rates will remain on hold into 2013 and we could even see more quantitative easing.
HEDGING YOUR EXPOSURE
As a result of this financial turmoil, anyone looking to buy a property within Europe should consider hedging their risk by securing some, or all, of the currency they’ll need using a forward contract. Forward contracts are offered by all the major currency specialists and are effectively a “buy now, pay later” scenario, allowing you to lock in a rate, even if you don’t have all your funds available right now. You’ll be required to pay a deposit of 5-10 per cent to secure the exchange rate. Should the exchange rate worsen you will not be affected. However, it is important to remember that if the exchange rate improves, you will still be obliged to complete your contract. In fact, we’ve seen the numbers of clients booking forward increase by just over 30 per cent in the last three months, as many look to take advantage of protecting themselves against future falls in the pound.
MARKET ORDERS
Buyers might also want to consider a market order. If you are looking to achieve a specific rate, again unlike your high street bank, most currency specialists can arrange a market order. This allows you to target a specific rate of exchange. We monitor the markets on your behalf and should the market reach your predetermined exchange rate, your currency is bought or sold automatically. Your order is live 24 hours a day and can be amended or cancelled at any time prior to the transaction taking place.
CONSIDER YOUR OPTIONS
Fluctuating currency rates can make a huge difference to the final price you pay for your overseas property. Unlike the high street banks, currency specialists will allow you to lock into favourable exchange rates for up to 12 months, protecting your money from adverse currency movements. We always remind clients that they’d never agree to buy a property in the UK without knowing the final cost. If they agree to buy an overseas property without fixing the exchange rate at the start that’s exactly the gamble they’re taking. If you bear in mind that the average off-plan property takes two years to be built you can see the risks involved by not fixing the rates at the outset.
Buyers should also consider the fact that volatility is particularly high at the moment and concerns over European nation’s debt has presented some opportunities to buy euros at very good rates.
EURO MORTGAGES
Anyone with a euro mortgage might want to consider their options as well. On average there’s been a 12 per cent difference between the high and low of the year, each year for the last four years (sterling-euro). This kind of volatility can make a massive difference to the cost of mortgage repayments each month.
Anyone looking to protect themselves against such swings or further falls in sterling, should consider using a regular payments service. Unlike your bank, the larger more established currency companies will allow customers to automate your mortgage payments via direct debit and fix the exchange rates for up to 12 months ahead, so customers know exactly how much their euro mortgage costs each month.
Using direct debit can save people up to £300 on transfer fees alone. In addition, customers make further savings as they’ll also avoid other charges such as commission – most banks can charge up to 2 per cent of the amount being transferred. Depending on the amounts you’re sending you could save thousands of euros a year on bank charges alone.