Daily Insight

More Brits than ever are buying second homes abroad says the latest data from the Office of National Statistics. The value of foreign property owned by UK residents has grown from £7 billion to £23 billion in the last decade, and has doubled in the past five years alone. Spain and France are the most popular destinations, with over 70% of European investment. Close behind comes the USA, and then Portugal.

With the staggering growth of this market, it is not surprising that a host of companies are now competing to provide services to individuals looking to make the leap. Moving house has long been described as the “second most stressful event after bereavement”. However, with the added complications involved in making a foreign property purchase, simply “moving” has been relegated to third place. Issues such as local regulation, language barriers and the inevitable differences in the buying process can be unnerving for British buyers who are often bewildered by the extra research and planning required to make their purchase run smoothly.

One area that has improved since the “buying abroad boom” took off in 2000, is foreign exchange. Buyers had previously been at the mercy of the high street banks when it came to fixing an exchange rate for their transaction. However, recent years have seen the growth of independent foreign currency brokers who are able to offer better exchange rates, as well as practical support and advice aimed at helping buyers understand the foreign exchange process. The success of these brokers has been driven by the focused approach they take. By concentrating entirely on foreign exchange, costs remain low, and by dealing in large volumes of currency, brokers are able to obtain “interbank” rates of exchange, passing these savings on to their clients. On a transaction of £200,000, the average saving by using an independent broker is £1000 - £1,500.

Independent brokers provide clients with access to daily market updates on each major currency, helping clients understand the background to the market before they make their deal. Most brokers also offer “forward” contracts, allowing clients to reserve their currency at a guaranteed exchange rate. Clients only need to pay 10% of the currency value initially, with the balance payable on the settlement date. This can be a valuable facility for property purchases, as the purchase price is usually agreed several weeks or months before the property is paid for.

Forward contracts eliminate the risk of the exchange rate fluctuating during the buying process. When you consider that the Sterling/Euro rate fell by over 7% between August and November 2004, you can see why currency risk is an important consideration for anyone buying abroad. By agreeing to purchase a European home in August and buying the currency to settle the deal in November, the exchange rate movements would have cost the British buyer an extra 7%. On a property costing €200,000 property this amounts to an extra €14,000, over £9,000 in sterling terms.



By using independent brokers to secure advantageous exchange rates, buyers of foreign property can fix their purchase price and ensure that they are not at the mercy of volatile markets.