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Currency exchange and French property - what might have been
Do you remember
where you were on the 23rd of January this year? If you were checking out
the French property market, perhaps apartments around Meribel at the time,
with £250,000 burning a hole in your pocket, the Sterling /Euro exchange
would have made them look a steal. At close to €1.53 your Sterling would
have been enough to splash out €382,000 on a nice two-bedroom pad.
Ignore currency exchange risk at your peril
Let's imagine that you took the plunge and
signed up for your French property. And let's further imagine that
completion was pencilled in for the end of March. To keep it simple let's
assume that you did nothing more, that you ignored the foreign currency
exchange risk because Sterling was looking good (which it was at the time). |
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confidence (although it will be passed a specialist currency exchange
professional in order to provide you with details
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How changes in currency exchange rate might affect French property buyers
After two months and with completion imminent on your French property, you would have picked up the phone to call the bank in Calcutta to buy your Euros. If you had not been keeping an eye on the currency exchange rate you would have been in for a serious shock, Sterling was down almost to €1.46. All of a sudden, instead of your French property costing €382,000 and change, your £250,000 would buy just €365,000. The €17,000 shortfall might have been problem, it might not, but boy would you have felt foolish. (Currency Exchange - Buying Euros at the Best Rates - Your FAQs.)
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Currency exchange rates in May
Looking at currency and currency exchange here at the beginning of May, although there is no suggestion that Sterling is in for another battering on that scale, look what has been happening to it for the last couple of months. It has been stuck mainly between €1.46 and €1.48. If things were to carry on like that it would make budgeting simple, but the sad fact is that Sterling will not hang around forever. Currencies seldom stand still for long. They are the original moving target. In two months' time, Sterling/Euro is likely to be anywhere but at €1.47.
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Currency exchange forecasts
There is nothing particularly wrong with the British economy or the Pound. Indeed things are moving ahead so swiftly that the Bank of England is expected to send base rates up to 5.50% or even 5.75% this summer. That is not a bad return in the global scheme of things. But Euro interest rates are not far behind and the European Central Bank has similar plans to the Old Lady. Euro rates are probably going to rise as well. Add to that the Euro's intrinsic advantages of superior liquidity and multinational investment opportunities and it is easy to imagine the Pound slipping further behind in coming months.
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Currency exchange specialists help French property buyers
Fortunately, if you intend to buy that ski apartment this summer it is possible to avoid unpleasant surprises. You can buy the Euros “forward” as soon as, or even before you sign the contract. Speak to a currency specialist and explain what you need to do. (Advantages of using a currency broker or foreign exchange specialist.) Agree an exchange rate, based on today's price, and decide when you will need the Euros. Don't lose too much sleep over picking an exact date, if it needs to be changed by a week or two there will only be a small technical adjustment in the price. You will be asked for a percentage deposit up-front, perhaps 10% of the total, and there will be nothing more to find, or to do, until settlement date arrives. At that point you hand over the Sterling balance and the Euros are credited to your account.
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Currency exchange and forward transactions
Does currency exchange sound simple? It is simple but because the high street banks do not offer the service to the public it is not well-known outside the world of finance and big business. (Currency exchange options which save you money.) With a forward transaction you can fix the exchange rate and the settlement date. All you will need to find at the outset is a percentage deposit. You will know exactly how many Pounds it will cost and exactly how many Euros you will receive. Do it and relax, you will enjoy your French property all the more for it!
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About the author
The information in this article has been supplied by the currency broker Moneycorp. For further advice on currency exchange and money markets, please contact Moneycorp directly using the links below.
Want to save time and money? Open an account now with this link:
Or get one of the Moneycorp team to phone you (saving you the price of the call). Just click on the phone icon, type in your telephone number and someone will call you straight back...
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