With the markets in turmoil, property prices in flux and Sterling falling against the Euro, but still riding high against the Dollar, anyone intending to buy property overseas would be forgiven for getting the jitters. In the last eight months a European property priced at €200,000 has become £24,677.40 more expensive to a British buyer due to fluctuating exchange rates. Currency specialists HiFX are however urging prospective buyers not to abandon their plans but to seek advice on how they can use current exchange rates to ensure they get a great deal on a property abroad.
Tip one – ‘Use the exchange rate to negotiate hard’
Mark Bodega, Director at foreign exchange specialists HiFX (www.hifx.co.uk) who help over 30,000 people buy property abroad each year comments, “Most buyers work to a budget and changes in the Euro / Sterling exchange rate has therefore led to people reviewing what properties they can afford. Rather than assuming that because costs have gone up, preferred properties are out of reach, buyers should remember that a drop in demand will mean vendors are also feeling the pinch. This leaves buyers in a position to negotiate prices. If buying a European property from a Brit, use the rate fluctuations to renegotiate the price of the property.”
If a British vendor first put the property up for sale in October 2007 for €200,000, they would have been expecting to receive £137,931.
If the vendor had managed to sell the property this month, due to the exchange rate they would receive an unexpected windfall (additional money from the sale) of £20,346.91! However buyers are now holding off buying as the prices have risen to high so demand has dropped.
In order to try to do a deal, buyers should therefore point out that the seller can afford to drop the asking price to €174,290 and still receive £137,931. Alternatively in the spirit of negotiation, the buyer could split the difference with the vendor and pay £187,143 for the property to do the deal.
Tip two – ‘Fix the exchange rate’
Fix the price of the property by fixing the exchange rate using a forward contract. In essence, a ‘forward contract’ means that individuals can buy the currency now, and pay for it later (when they need to make the individual stage payments). Buyers will be required to pay a 10% deposit now and the 90% balance upon the maturity of the contract.
Bodega continues, “We always remind clients that they’d never agree to buy a property in the UK without knowing the final cost. If you agree to buy an overseas property without fixing the exchange rate at the start that’s exactly the gamble you’re taking. But some people become greedy and despite our advice they think they’ll hold out for a better rate. While exchange rates could go in your favour, they are just as likely to go against you and we strongly recommend that people who are working to a tight budget fix the rates at the outset to protect themselves and ensure they can afford the property when it comes to completion.”
Tip Three – ‘Get the experts in’
Using a currency broker to transfer the money to buy the property and not a high street bank will save consumers thousands of pounds. On average, mystery shops show that using a high street bank will cost up to 4% more on the exchange rate alone. 4% may not sound like a lot but this means if an individual is changing £100,000 into Euros for example, they’d pay around £4,000 more than if they’d used a company like HiFX. Using a high street bank also means being subject to a number of additional bank charges which include commission fees (up to another 2% of the amount transferred and transfer charges (usually £25 for each and every transfer) and finally depending on where the money is being sent, up to another half a percent bank receiving fees. Currency specialists like HiFX will transfer money abroad completely free of charge.
Tip Four – ‘Sort out ongoing payments’
Once someone has bought their overseas property or moved to their new life abroad, they will still need to make regular currency transfers for a wide variety of reasons the most common of which are:
– Overseas mortgage payments, pension transfers, the repatriation of rental income, salary transfers and school fees etc.
However buying currency on a regular basis is time consuming and currency fluctuations can make budgeting impossible. Also the international transfer fees and commission charged by the banks can soon add up to a tidy sum.
A Regular Payments Abroad Service allows customers to automate their payments via direct debit and fix the exchange rates for up to 2 years ahead so they know exactly how much is being transferred every month. The HiFX RPA service is currently used to make over 20,000 payments every year.