CURRENCY GAME THE RATING
When you buy or move overseas, chances are you’ll need to exchange pounds into another currency and transfer these funds to a foreign bank account. To do this we recommend using a specialist currency broker and we’ve worked out a timeline showing the ways they can help you save money along your
buying “journey”
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Before you begin your property search Be prepared by opening an account with a currency broker early, preferably before you’ve even started looking to buy abroad – after all, it’s free to do so. Not unlike opening a bank account, opening an account with a currency broker will involve agreeing to the fi rm’s terms and conditions of trade, and for anti-money laundering purposes you will need to provide a copy of a form of photo ID, such as a passport and/or driver’s licence, and proof of your registered address, in the form of a bank statement or utility bill (gas, electricity, water, landline telephone), that’s no more than three months old.
Fixing a budget for your overseas purchase One of the most useful tools currency brokers have for overseas homebuyers is the “forward contract”. This effectively protects your buying power from currency fl uctuations by letting you fi x an exchange rate based on a current rate for a future transaction. There are two types of forward contract: a “fi xed forward” lets you fi x today’s rate for a fi xed date in the future and take delivery on that date only; an “option forward” lets you fi x today’s rate up to a set point in the future and gives you the option of taking delivery at any point up until the agreed date. Why would you need a forward contract? Before you buy abroad it’s likely all your funds are in pounds, which means when you come to purchase you’ll need to exchange them into another currency. However, due to fl uctuating exchange rates, what your pounds buy today will not be the same as what they’d get you in a week, month or year’s time – a forward contract gets rid of this uncertainty. Once you know what currency you’re buying in, say euros, speak to your account manager about what rate they could secure for you. For example, if your Sterling budget is £150K and the current rate is £1=€1.17, typically they might guarantee you a rate of £1=€1.15 for up to 18 months, meaning you know at any time in that period your £150K is worth €171K, allowing you to budget in euros safely. To secure a forward contract, typically your broker will ask for ten per cent of the total value of the future transaction you wish to make.
Paying for your property Once you’ve found a property and paid a (refundable) cash deposit to secure it, it’s advisable to open a local bank account where you are buying. Back in the UK, having paid the necessary amount of pounds into your currency broker account, you can now instruct your account manager to exchange them into euros, either at the rate agreed with a forward contract or as a one-off spot contract based on the current rate. And if you are not restricted by time
and set on achieving a particular exchange rate, “stop-loss orders” and “limit orders” allow you to buy and sell currency only when a specifi ed exchange rate is available to you. Your account manager will monitor the currency markets and keep you updated. Whichever contract you’ve used to
exchange your pounds, your broker can now transfer your converted euros into your overseas bank account. You now have the funds available to pay a full deposit and complete on your overseas purchase – guided by an independent lawyer of course. Note, another advantage of using a currency broker to transfer money into overseas bank accounts, besides their competitive exchange rates, is that they tend to charge less in bank transfer fees than banks. And don’t forget, most brokers now allow you to access your account with them on-line, meaning you can do much, if not all, of the above from the comfort of your home in the UK.
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