Perhaps you want a rustic property to restore in France, or an apartment to use as a holiday home on a Spain Costa, or maybe an investment property in an up-and-coming market like Lisbon. Buying a home overseas is often a long-held dream and realising that dream will be one of the biggest purchases you ever make, and so there is a lot to consider. Complications sometimes arise amid fundamental differences to the UK process: buying procedures, legal system, language and currency.
Don’t be put off by these potential hurdles. Focus on overcoming them by being proactive and assembling a team of experts at the start of your buying journey. Choosing an FX specialist is just as important as selecting an estate agent who can guide you through the property search and a lawyer who can ensure your purchase is above board legally. This is because buying a property overseas exposes your budget to a big risk: exchange rate fluctuations.
Exchange rates are constantly changing due to various economic and political factors and this means that when agreeing a price for a property purchase abroad, while the price will be agreed in the local currency, until the currency is purchased the cost of the property in Sterling will continue to fluctuate.Even small movements in the exchange rates can make a big difference to the price, potentially causing the cost of the house to increase beyond your budget.
Working with a currency specialist
Overseas buyers often make one of two mistakes when first exposed to exchange rates: they hope they move in their favour when the time comes to pay, or, they rely on potentially inaccurate currency forecasts, both of these shortsighted approaches represent a huge gamble.
A currency specialist replaces this roll of the dice by helping you adopt a proactive approach to managing your currency requirements. Aware that exchange rates are impossible to accurately predict, they will use their understanding of underlying market trends and direct access to market data to provide insight and educate you about tools that shield your budget from currency risk.
Working to your budget, they will tailor these tools to your requirements, budget, and risk appetite.
Forward contract
A forward contract allows you to lock in a current exchange rate for an international payment on a specified date in the future, without needing to have all your funds available. This ability to secure the exchange rate for your property purchase between making an offer and completing, makes it a popular tool to protect against currency movement as demonstrated by this quick example:
- Having worked with your estate agent to find a property in Spain that ticks all the boxes, you seek Lumon’s services who assign you a dedicated account manager.
- When you transfer your funds to pay the deposit the pound to euro exchange rate is €1.17, meaning your €275,000 property will cost around £235,000.
- Your account manager informs you that the pound is experiencing heightened volatility and provides the option of locking in today’s €1.17 exchange rate for the future payment to Spain using a forward contract – securing the price of your property at £235,000.
- Fast-forward three months and you’re ready to complete the purchase, during which time the rate has plummeted by five cents to €1.12. If you hadn’t been proactive and secured a forward rate at €1.17, your property would have cost around £245,500 at the current rate – £10,500 more.
It’s worth noting, however, that if the rate improves in your favour, you won’t be able to take advantage of that movement.
Market orders
If you can be more flexible with your budget, an option available to utilise are market orders.
This allows you to set a target rate above (limit order) or below (stop-loss order) the current market level, which if reached triggers the order instantly. You might implement a limit order if you need to make an international payment but are not restricted by tight deadlines and need a higher rate to ensure the property you are purchasing is within your budget. You might implement a stop-loss order if you are working to a strict budget and don’t want to risk the market dropping below a level you can’t afford.
Or perhaps you’d like to use these tools in tandem so you can plan for best- and worst-case outcomes that fit within your budget, it’s up to you.
Ongoing support
Your exposure to currency risk doesn’t end as soon as your purchase is complete; it will also impact the value of ongoing financial requirements like pension and income transfers, or paying bills associated with your new property. Your dedicated account manager can help you safeguard your regular payments against sudden market movements by fixing the rate, so you know how much you are sending and receiving every time, providing peace of mind that you will always have the funds to cover your outgoings.
They can also inject convenience into the process by helping you set up fee-free automated payments that occur as frequently as you wish, whether it’s weekly, monthly or at more irregular intervals.
Lumon: your trusted currency partner
Don’t sit back and let exchange rates erode your buying budget. Empowered by an understanding of how exchange rates can cause the price of your property to fluctuate by the minute, you can take proactive steps to control its impact by working with us.
Lumon is a specialist in international payments with bank beating exchange rates. We’ve crafted our services to meet the needs of buyers like you and we tailor them to your individual needs. This has allowed us to help thousands of people secure the keys to their dream overseas home, a life-enhancing service that has helped us earn a 4.8-star Trustpilot rating.
