OPINION

John Stepek guides you through the key con­sid­er­a­tions of for­eign ex­change when pur­chas­ing prop­erty over­seas

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Don’t spend ages try­ing to fig­ure out where the pound will go next, as no-one knows

One fea­ture of the postBrexit land­scape has been ag­grieved trav­ellers post­ing out­raged pic­tures on so­cial me­dia of air­port bu­reaux de change of­fer­ing less than a euro for a pound, of­ten with com­ments along the lines of “thank you, Brexit!”

Yet the re­al­ity is that, while the pound has cer­tainly fallen hard against the euro, it has yet to drop be­low €1.07 in the cur­rency mar­kets. In other words, there has never been a point at which the pound has been worth less than the euro. So if you’ve swapped money at par­ity or be­low, you’ve merely been an­other vic­tim of the great for­eign cur­rency ex­change rip-off.

For­eign ex­change is one area where the fi­nance in­dus­try can still slot in hid­den costs and large mark-ups with­out too many peo­ple notic­ing. And while it might not mat­ter that much if you’re chang­ing £100 in a hurry, for a big­ger pur­chase – such as a prop­erty abroad – then it clearly makes a huge dif­fer­ence.

There are sev­eral other is­sues to con­sider when buy­ing a prop­erty abroad, be­sides the pur­chase price of the prop­erty.

Firstly, when trans­fer­ring a large lump sum such as a house de­posit, ev­ery lit­tle helps on the ex­change rate you get, so shop around for the best-value provider. There are two main as­pects to the costs: any trans­fer fees and the ex­change rate it­self. You need to con­sider the all-in cost – in other words, ex­actly how much for­eign cur­rency will you get for a given ster­ling sum. First check the ex­change rate in the money mar­kets (try Bloomberg, bloomberg.com, or Ya­hoo Fi­nance, uk.fi­nance.ya­hoo.com). You won’t be able to match that rate, but it does give a clear idea of what the best pos­si­ble rate could be. It’s also worth get­ting a quote from your bank, but mainly for the pur­pose of com­par­i­son – your bank will rarely of­fer the best deal. In most cases, for a large lump sum, your best bet is to use a spe­cial­ist for­eign ex­change bro­ker. Pop­u­lar bro­kers in­clude Mon­ey­corp, Cax­ton FX or Cur­ren­cies Di­rect, but there are many more. Make sure the bro­ker is au­tho­rised by the Fi­nan­cial Con­duct Author­ity (FCA), Bri­tain’s fi­nan­cial in­dus­try reg­u­la­tor (you can do this by search­ing the FCA reg­is­ter at fca.org.uk/firms/ fi­nan­cial-ser­vices-reg­is­ter). All FCA-reg­is­tered firms must hold their clients’ money sep­a­rately from their own. As a re­sult, if the com­pany goes bust, client funds should re­main in­tact. Bear in mind that ex­change rates can be pre­car­i­ous. Buy­ing a prop­erty abroad is stress­ful enough with­out the dan­ger that your hard-earned de­posit could shed ten per cent of its value overnight if some­thing rat­tles the cur­rency mar­kets. For­eign ex­change bro­kers can al­low you to lock in a spe­cific rate for a year or more. So if you’ve de­cided on a house, but the deal isn’t due to com­plete for an­other six months, you can fix the rate today and have peace of mind that you’ll still be able to af­ford it when the time comes.

FIXED RATE, OR NOT?

Se­condly, trans­fers for liv­ing costs once you’ve bought the prop­erty are an­other con­sid­er­a­tion. If you are mov­ing thou­sands of pounds on a reg­u­lar ba­sis (say from a pen­sion de­nom­i­nated in ster­ling), a spe­cial­ist bro­ker is likely to be your best bet and, as be­fore, you can lock in an ex­change rate. If you de­cide against do­ing so, then you need to be pre­pared for the ex­change rate to move up or down – some­times quite sig­nif­i­cantly. For the sake of com­par­i­son, in sum­mer 2015, £1,000 could have bought you be­tween €1,350 and €1,400. Today, your best rate will be in the re­gion of around €1,100. That’s a hefty bite out of your dis­pos­able in­come, so con­sider how much risk you can af­ford to take.

Thirdly, cur­rency risk is also worth tak­ing into ac­count if you are buy­ing with a mort­gage. Gen­er­ally speak­ing, it makes sense to match your debts to your in­come. If you are paid in ster­ling, then have a ster­ling mort­gage. This re­moves the ex­change rate risk from the equa­tion – if the euro spikes against the pound, you wouldn’t want to be pay­ing a euro-de­nom­i­nated mort­gage with a ster­ling in­come. Equally, if you are rent­ing the prop­erty out, and the rental in­come is in the lo­cal cur­rency, you might con­sider a lo­cal cur­rency mort­gage in­stead.

Fi­nally, don’t spend ages try­ing to fig­ure out where the pound or any other cur­rency will go next, as no-one knows. Shop around for the best deal you can get at the time you need the money, get the trans­ac­tion done – then put it out of your mind.

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