With so much ‘will they, won’t they’ swirling around Brexit at the moment – and at least seven different possible outcomes – it’s understandable that British property buyers might be worried about purchasing a home abroad.
However, there are easy ways to completely remove those risks. Here’s what to keep an eye out for when sending money overseas, and how to completely control those risks, no matter what happens.
What are the risks of sending money overseas?
Sending money from one currency to another carries an inherent element of risk, if you don’t plan ahead. The exchange rate is constantly changing – and that means the value of your payment is constantly changing, too.
Imagine, for example, you’d found the perfect villa on the sunny Spanish coast for €300,000 last month. You put in an offer in mid-November and got ready to transfer your money. On the 14th November, you would have expected to pay £261,145 for that house. However, by the 22nd November, you would have needed to pay £265,800. In other words, you would have found yourself scrambling for an extra £4,000.
And, over the last twelve months, that difference is even greater: you could have needed to pay an extra £14,500.
This means that, in the time between putting an offer and making a payment, the value of that payment will change.
Can I ‘play the market’?
It can be tempting to play the market – to try and second-guess what’s going to happen. Unfortunately, that really is a game of chance. A new Brexit development, a below-average economic release or even a single Tweet can cause the markets to soar or drop. None of us can say with any certainty what’s going to happen in the future.
Take the major banks, for instance. There’s no agreement between them where the pound/euro exchange rate will go. Deutsche Bank thinks we’ll see 1.172. BNP Paribas thinks we’ll see just 1.0869.
What’s the safest way of sending money overseas?
With just a bit of prior planning, sending money overseas can be completely risk-free.
The key here is something called a ‘forward contract’.
A forward contract is an agreement whereby you fix in the same exchange rate for up to twelve months. That way, you know exactly how much you’re paying, no matter what the markets do.
Take the example of our Spanish villa for €300,000. If you’d used a forward contract, even when the pound sterling price increased by £4,000, you’d still pay the original price. That’s because that’s the exchange rate you’d locked in.
When should I start thinking about a forward contract?
At Smart Currency Exchange, we are unique in that we specialise in removing the risk of currency transfers for international property. We’ve helped thousands of buyers over the years, and we find it always boils down to the same thing: plan ahead.
Don’t leave your finances until after you’ve found your property. Get your budget in place before you go on a viewing trip to see potential homes, and it’ll mean you have three things:
- A realistic idea of your budget in euros, as well as in pound sterling.
- The ability to make your transfer as soon as you find that dream home, so you don’t lose out.
- The knowledge that the final price isn’t going to change, because you’ve fixed the rate.
This means you can sit back and concentrate on finding your perfect property, without needing to worry about losing money. With a forward contract, no matter what goes on in politics or the economy, you won’t be affected. For expats who lock in their exchange rate, even a ‘no deal’ Brexit really is no big deal!
If you’re looking at starting a new life out here in sunny Spain, join the thousands of expats who use our services at Smart Currency Exchange to completely remove the risk of sending money overseas.
Simply open a no-obligation account today to get started. Your Personal Trader – who will stay with you throughout the process – will give you a call to discuss your requirements and how we can help.
Guest Blog by Smart Currency Exchange