How to save when buying or selling property overseas
Sterling has had a tough start to the year against key major currencies like the dollar and the euro. And there is talk of it weakening further as 2016 progresses.For anybody buying property abroad this is unlikely to be good news. So the question is, can you do anything to protect yourself?
Some economic commentators predict that diverging policies between the US Federal Reserve (Fed) and the European Central Bank could serve to strengthen the dollar against not only the euro, but the pound too. If this prediction were to materialise, then the pound may be travelling further south. Politically, the increased likelihood of ‘Brexit’ this year could also stir up some currency volatility and with a referendum looking increasingly likely these valid concerns could well force the pound downwards.
Imagine you were buying international property in the US, which likely means making an international transfer between sterling and the dollar. A falling pound will have a big impact on how far your money stretches and recent history certainly warns us that significant falls in the pound are indeed possible. There have been three occasions when the pound fell 14% or more against the dollar since the 2008 financial crisis.
On one occasion – between July 2008 and January 2009, the pound lost around 30% against the dollar as investors sought safety in the US currency. Consider buying a property over this period. A property worth $200,000 – the rough price of the average Florida home – would have cost about £46,000 more had you bought on 25 January 2009 (when £1 only bought you around $1.36) as opposed to buying on 3 July 2008 (when £1 was worth closer to $2). Granted, this example is an extreme situation. But it highlights that it might be sensible to do something to ensure that adverse movements, no matter how big or small, don‘t ruin your plans to buy abroad.
It is natural to turn to speculatory market observations for clues. But even the most seasoned economist or foreign exchange expert cannot foresee what will happen to rates. This is one of the reasons that CityAM has partnered with foreign exchange specialist moneycorp to give its readers access to a service that offers the appropriate currency guidance. CityAM International Payments gives every reader access to a personal account manager to guide them through their overseas money transfers.
In terms of protecting a transfer from fluctuations, your account manager may talk to you about using a ‘forward contract’ to protect yourself from negative exchange rate movements. A forward contract allows you to secure an existing rate for up to two years. This could be especially useful in the context of a property purchase, where it can take months to settle and currency markets could do anything over the same period (please note a forward contract may require a credit facility).
Furthermore, using a high street bank to make international payments may appear to be the most convenient option. Yet the exchange rates received at a high street bank might mean that an international transfer could cost up to 4% more than it needs to. Making an international transfer with moneycorp can be far more cost-effective. The service provides our readers with access to exchange rates that typically beat what you can get from many banks by around 3-4%. If you consider what this means on that property purchase of £100k it could equate to a saving of up to £4,000.
Our readers also get real convenience. moneycorp makes it easy to arrange regular international payments, which makes things like transferring a foreign currency salary into sterling more manageable. The Regular Payment Plan enables you to set up repeat payments at any interval, as well as fix the exchange rate on regular payments.
You receive an online account too and all online transfer fees are waived for CityAM readers (compared with banks who can charge a £20-40 fee for each transfer). Moneycorp's online service also means you can buy or sell currency and make transfers at any time, from anywhere in the world.
Last year alone, Moneycorp conducted around 8.1 million currency transactions, and is authorised and regulated by the Financial Conduct Authority for the provision of payment services.
For competitive rates and the exclusive CityAM offer of free online transfers, call free on 0808 115 3718