News watch !

Posted 13 August 2008 at 16:13

Posted in Currency Exchange

News watch !

In light of current market conditions it is surprising to see just how many people are still playing the waiting game when it comes to buying and paying for an overseas property. One could categorise these clients quite simply into two groups, namely buyers and potential buyers, with the latter mostly being made up of clients who have seen their dreams and budgets eroded by massive changes in the Euro exchange rate over the last 6 months.   

For the buyers, why are they waiting when the price of their property has already been negotiated and agreed? Is it because they too are hoping for the Pound to turn the corner or is it because they are being forced to wait as the market continues to dictate the final purchase price of the property. It is important to remember that the purchase price of an overseas property will fluctuate as the exchange rate fluctuates until all of the currency required has been secured.

The turbulent currency markets of the past seven months have reminded people that prices can change dramatically in a relatively short period of time. The biggest question at this stage remains "are things going to improve and if so when?" My answer to this somewhat fragile question is "In times of financial uncertainty head for risk aversion - If you are unable to maximise your budget then at very least protect it, why wait for the market to squeeze or erode every spare unallocated cent from your once carefully calculated budget? Secure the exchange rate and protect your budget"   

At FC Exchange we have a strategy for this type of market and it's based on timing, discipline and foresight.

The first thing we suggest is to speak to a broker. Foreign Currency Exchange brokers have access to investment banking prices; their job is to monitor the market and get the best exchange rates for their clients. There are few people that know more about currency markets and they could save you a great deal of money with their knowledge and insight. Tailored currency buying solutions, economic data and timescales are all factors which will have to be considered when securing currency. Don't be overwhelmed though, your broker will guide you and ensure that you are aware of current market conditions.

When you think that Sterling has fallen by nearly 15% against the Euro from the start of the year it demonstrates the value of securing the exchange rate at the right time.

Most people like to know exactly how much they will be paying for a property. Setting a tight but realistic budget and sticking to this is the first golden rule. Don't try to do the maths while you are out in Spain, be disciplined. Talk to a broker about the market and make your decision based on current exchange rates.

If you really want to be safe you should set a budget with a bit of "wiggle room" which will make allowances for and takes into account realistic exchange rate fluctuation relevant to your timescales.

One thing to bear in mind once you have agreed to the purchase price is "how will you be paying?" In most cases the actual property buying process is fairly rudimentary - deposit fairly sharpish and then balance on completion. However, new build properties are slightly different as they require an actual payment schedule with stage payments at various completion points throughout the build.  

The problem with both methods is the time, basically the difference between making the initial payment and the following instalments. In this time the value of the currency you require will change and could rise or fall.

Even though the exchange rate will change between these dates, a ‘forward contract' provides the opportunity to guarantee an exchange rate and thereby eliminate the risk of the property getting more expensive.

Few people pay the entire amount in one go these days as there are often more economical ways of doing things.