3 ESSENTIAL SERVICES
CURRENCY IS KEY O
ne of the big stories this year has been the fall of the euro against sterling, yet exchange rates should always be a key consideration if you are buying a home abroad.
Unless you already have funds in a particular
country, buying an overseas property will always require you to exchange your pounds into another currency and transfer these funds abroad. Savvy investors will use exchange rates to help choose when best to buy, and take advantage of big currency swings in their favour. For example, at the time of writing the euro is at a four-year low against the pound (at €1.27), so the cost of purchasing a €200,000 home is £20,000 cheaper now than in November 2011. Even once you’ve bought, you may have to make regular payments overseas from the UK, for example to meet mortgage repayments, or if you retire somewhere sunny you’ll need to have your pension paid monthly into a foreign bank account. Your bank will be able to do such currency transfers for you, but you could get more favourable rates using a specialist currency - or FX - broker. More and more overseas buyers are choosing this
option, because they can typically save up to four per cent, and also for the hassle-free aspect of the service (you transfer sterling to your broker and they do the rest such as making regular payments abroad). Brokers often charge lower money transfer fees than banks as well as allocating you your
own personal account manager, and will also offer on-line account access. Currency brokers can buy your currency at the exact time that rates are best (even if in the middle of the night!). For example, if you have funds you’d like to transfer abroad, are keen to do it at a particular rate and are not restricted by time, “stop-loss orders” and “limit orders” allow you to buy currency when your preferred exchange rate is available. Your broker would monitor the currency markets and keep you updated. Then there are “forward contracts” which effectively protect your buying power from currency fl uctuations by letting you fi x an exchange rate for a future transaction. This makes budgeting much easier! With a forward contract you can either fi x the date you wish to take delivery of your currency, or have the option of taking delivery at any point up until the agreed date. Firstly, you can fi x the amount of pounds you send abroad on a regular basis, for example monthly, which means the amount of local currency you receive in your foreign bank account will fl uctuate with the exchange rate. Or, in reverse, you can fi x the amount of local
currency, for example euros, that is paid into your overseas account, meaning the amount of pounds being debited from your UK account will fl uctuate with the exchange rate. Finally, you can use a forward contract to fi x the exchange rate you receive on all regular payments over a specifi ed period, such as 18 months.
MONEY.. MATTERS.. Follow exchange
rates to help decide when to buy overseas. Use a currency
exchange broker to save money on moving money abroad. Manage regular
transfers abroad by fi xing rates with “forward contracts”.
AIPP CONSUMER GUIDE 39
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