Exchange rates can make a holiday home cost more than you bargained for – but they can net savings too, says Laura Latham
Wednesday, 15 October 2008
In the unlikely event that you haven't noticed this, the financial markets are in a violent state of flux right now. This doesn't just influence how and where you buy your property, but also what it will cost. Exchange rates are equally affected by market forces, which means that the price you agree when you make an offer may not be what you actually end up paying by the time you complete.
Even a small change in rates can add – or, if you're lucky, subtract – thousands from the cost of your home, and you should plan for any unexpected currency fluctuations. As most overseas property purchases are done in local currencies, you will have to organise the movement of large sums from your bank account into that of whoever is handling the sale at the other end. It isn't complicated – but how you go about it can seriously affect the rate of exchange you get.
High street banks do provide transfer services, but you'll usually get worse rates and higher fees and might not get expert advice should something go wrong. A better course of action may be to use currency brokers such as TORFX, who specialise in transferring funds between countries and can generally offer a better deal and service.
"It's surprising how often people use their local bank to transfer funds," says James Hickman of the currency specialists Caxton FX. "The bank exchange rate is generally poorer than brokers offer, the process can take longer, and they won't have options that could benefit you financially."
Banks will almost certainly give you a tourist rate, far lower than the corporate rates available to brokers. At time of going to press, for example, banks were offering sterling rates as low as €1.22 on a transfer of €100,000, while Caxton was offering €1.2834, which could save you up to £4,000.
Another issue with using banks is that you'll be stuck with whatever rate is in place the day the transfer happens. Brokers, however, can provide "forward contracts", meaning that the rate at which you buy your currency can be fixed up to several months in advance, allowing you to take advantage of the best rates in that time. "If the rate is poor and we think it will improve, we'd advise customers to wait," Hickman says. "Then we'd aim to lock their money in at a better rate."
This in-depth knowledge of the industry is also a benefit, as Peter Burgess discovered when he recently engaged a broker to transfer money to buy his Swiss chalet. "I initially used my bank, but didn't trust its ability to move my money efficiently," he says. "Under Swiss law, we needed to complete on our purchase by a specific time or we'd be fined £40,000. The broker I spoke to understood the situation completely and arranged the transfer within 24 hours."
Burgess was also advised that the exchange rate was about to change. "I was told to book my currency as soon as possible as the pound might soon drop against the Swiss franc, and that is exactly what happened. I definitely would have lost money if I had waited."
The Independent
October 2008
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