Q&A: Ask the ex­perts

Our panel of ex­perts pro­vides the an­swers to your queries

Living France - - Contents - CHRIS SAINT

Our ex­perts give their ad­vice on cur­rency ex­change, in­her­i­tance law and power of at­tor­ney

CAN I BEAT THE EX­CHANGE RATE?

QI’m plan­ning to buy a new-build prop­erty in France and will need to have funds avail­able in eu­ros to pay for it when the de­vel­op­ment is com­pleted in four months’ time. I’ve been watch­ing the ex­change rate for some time but ob­vi­ously it’s dif­fi­cult to know what will hap­pen, es­pe­cially as we move closer to Brexit. Would it be ben­e­fi­cial for me to use a for­ward con­tract, and are there any dis­ad­van­tages? I’ve also re­cently come across a flexible for­ward con­tract but I’m not sure what the dif­fer­ence is? MAR­CUS TATE Thanks for your ques­tion. As you say, it’s very dif­fi­cult to pre­dict what will hap­pen in the cur­rency mar­kets and Brexit will al­most cer­tainly have an ef­fect on the ster­ling/euro ex­change rate over the com­ing months. Even with the best plan­ning, some things can come out of the blue as well.

A for­ward con­tract could cer­tainly be an op­tion for you to con­sider as it is par­tic­u­larly use­ful when buy­ing a prop­erty abroad. This is be­cause it gives you the se­cu­rity of know­ing what you’ll pay in the fu­ture, which helps you to stick to a bud­get. Af­ter all, you wouldn’t buy a house in the UK with­out know­ing the fi­nal cost.

Most cur­rency spe­cial­ists should be able to fix an ex­change rate for up to two years ahead, but there are dif­fer­ent types of for­ward con­tracts avail­able to you. Usu­ally you can ei­ther fix for a spe­cific date in the fu­ture, or you could fix for a pe­riod of time (for ex­am­ple, any point within a three-month win­dow). The first op­tion is great if you know the ex­act date that you’ll need the eu­ros. The sec­ond is what’s known as a flexible for­ward, and as the name suggests it pro­vides a lit­tle more flex­i­bil­ity on the date. Here you are able to ac­cess your eu­ros at any point within the win­dow you choose.

It’s im­por­tant to note that for­ward con­tracts are not usu­ally avail­able through banks. If you’re us­ing a cur­rency spe­cial­ist, you should speak to them to see if their ser­vices dif­fer from what I’ve ex­plained above.

While a for­ward con­tract will elim­i­nate the risk of mov­ing ex­change rates, it’s es­sen­tial to know the po­ten­tial dis­ad­van­tages too.

Firstly, as the rate is fixed at the out­set, you won’t ben­e­fit if the ster­ling/ euro ex­change rate sub­se­quently be­comes more favourable. That be­ing said, the pur­pose of a for­ward con­tract is not to spec­u­late on whether the rate will get bet­ter or worse, but to re­move that risk com­pletely.

The sec­ond dis­ad­van­tage is that it is what’s called a ‘firm con­tract’. In plain English this means that once it’s set up, you have to go ahead with it. If you need to can­cel it you may in­cur ad­di­tional costs. You should speak to your provider about po­ten­tial charges be­fore set­ting up a for­ward con­tract.

You will have to pay a de­posit to set up the for­ward con­tract, nor­mally around 10% of the to­tal value. If there are very large swings in the cur­rency mar­kets, you may be asked to in­crease your de­posit be­fore the fi­nal amount is due. Although this rarely hap­pens, it’s some­thing you should bear in mind.

I hope ev­ery­thing goes well with your pur­chase. It’s worth know­ing that for­ward con­tracts can also be used for on­go­ing costs, such as mort­gage pay­ments or reg­u­lar trans­ac­tions for liv­ing ex­penses. Your pay­ments can be col­lected by di­rect debit each month and then con­verted at the same ex­change rate for up to two years.

Please note this is not per­sonal ad­vice or a rec­om­men­da­tion to buy or sell any of the cur­ren­cies men­tioned. You should dis­cuss your sit­u­a­tion with your cur­rency provider or seek ad­vice.

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