5 questions to ask your currency specialist when buying a home overseas
Fluctuating exchange rates add a layer of uncertainty to the overseas property buying process. If overlooked, this often-confusing variable can cause the price of your dream home to shift in value between making an offer and completing.
To achieve transparency when budgeting, pick the brains of someone whose business it is to understand the dynamics of currency markets and how to manage them: a currency specialist.
The benefits of using a specialist over your bank to facilitate your overseas property purchase are compelling – from personal service to exchange rate acumen. The expert insight and guidance they can provide into exchange rates and the tools that help you take control of them is invaluable when buying overseas. It could mean the difference between successfully completing your purchase or exchange rate fluctuations causing the cost to disappear beyond your budget.
To provide you with clarity during the buying process, here are five questions you should ask your currency specialist before you get started.
1. What causes exchange rate volatility?
Each day the pound strengthens and weakens in value against other currencies, exposing the price of your property to these unpredictable market movements. Even a seemingly small change can have a big impact on the final price of your property. Why does this happen?
Currencies are at the mercy of political and economic news – from inflation to elections. These variables provide valuable insight into the health of a nation’s economy: positive news, like an interest rate rise, typically causes the value of the currency to rise (strengthen), while negative news, like a below forecast data release, typically causes the currency to drop (weaken).
2. Should I try and second guess the currency market?
You can easily find out when exchange rates might fluctuate by researching when the factors that influence them, like economic data releases, will happen – but you can’t be sure of the outcome or how the currency market will react. So, without a crystal ball you can’t predict which direction they will move or by how much with certainty.
Take the COVID-19 pandemic for example. This black swan event completely blindsided currency markets as the catastrophic impact of sudden lockdowns swept through economies, causing the pound to plummet in value. Amid this uncertainty, your first line of defence is not relying on currency forecasts. If they’re inaccurate your property budget could be dealt a chastening blow.
3. How do I protect my budget from exchange rate volatility?
The overseas property buying process requires you to walk a tightrope between having an offer accepted at one price and completing the purchase weeks or months later. During this protracted period, you run the risk of exchange rate fluctuations causing the price of your property to increase.
The simplest and most effective way to shield your budget from this currency risk is to use a forward contract. This allows you to fix the price of your property by securing the current market exchange rate for future international payments – providing you with the security of knowing your budget is insulated against adverse rate fluctuations.
4. How much does it cost to make international payments?
The short answer: it depends on who sends your money. High street banks typically charge between around £15 and £25 per transfer, while a currency specialist's fees are almost always lower – either a small percentage of the amount being transferred or even waived for larger deals like a property purchase.
5. How do I make regular payments once my purchase is complete?
You won’t be closing the door on your international payment requirements when you finally pick up the keys to your new home. From utility bills and maintenance fees to pension transfers, your finances will probably remain exposed to exchange rates on a quarterly, monthly, weekly or more irregular basis.
Working with your currency specialist, you can engage in a set arrangement – known as scheduled recurring transfers – that facilitates the automatic movement of funds from one account to another at specified intervals that align with your needs, such as a monthly bill. The ability to secure an exchange rate augments this convenience by providing security, so you know how much you are sending and receiving every time.