HOW TO BUY - Target Markets- Global Property Investment

CURRENCY IS KEY
ne of the big stories this year has
been the fall of the euro against
sterling, yet exchange rates should
O always be a key consideration if
you are buying a home abroad.
Unless you already have funds in a particular
country, buying an overseas property will always
require you to exchange your pounds into another
currency and transfer these funds abroad.
Savvy investors will use exchange rates to help
choose when best to buy, and take advantage of big
currency swings in their favour. For example, at the
time of writing the euro is at a four-year low against
the pound (at €1.27), so the cost of purchasing a
€200,000 home is £20,000 cheaper now than in
November 2011.
Even once you’ve bought, you may have to make
regular payments overseas from the UK, for example
to meet mortgage repayments, or if you retire
somewhere sunny you’ll need to have your pension
paid monthly into a foreign bank account. Your bank
will be able to do such currency transfers for you,
but you could get more favourable rates using a
specialist currency - or FX - broker.
More and more overseas buyers are choosing this
option, because they can typically save up to four per
cent, and also for the hassle-free aspect of the service
(you transfer sterling to your broker and they do the
rest such as making regular payments abroad).
Brokers often charge lower money transfer
fees than banks as well as allocating you your
3 ESSENTIAL SERVICES
own personal account manager, and will
also offer on-line account access.
Currency brokers can buy your currency at the
exact time that rates are best (even if in the middle
of the night!). For example, if you have funds
you’d like to transfer abroad, are keen to do it at
a particular rate and are not restricted by time,
“stop-loss orders” and “limit orders” allow you to
buy currency when your preferred exchange rate is
available. Your broker would monitor the currency
markets and keep you updated.
Then there are “forward contracts” which effectively
protect your buying power from currency fl uctuations
by letting you fi x an exchange rate for a future
transaction. This makes budgeting much easier!
With a forward contract you can either fi x the
date you wish to take delivery of your currency, or
have the option of taking delivery at any point up
until the agreed date. Firstly, you can fi x the amount
of pounds you send abroad on a regular basis, for
example monthly, which means the amount of local
currency you receive in your foreign bank account
will fl uctuate with the exchange rate.
Or, in reverse, you can fi x the amount of local
currency, for example euros, that is paid into your
overseas account, meaning the amount of pounds
being debited from your UK account will fl uctuate
with the exchange rate.
Finally, you can use a forward contract to fi x the
exchange rate you receive on all regular payments
over a specifi ed period, such as 18 months.
MONEY..
MATTERS..
Follow exchange
rates to help decide
when to buy overseas.
Use a currency
exchange broker to
save money on moving
money abroad.
Manage regular
transfers abroad
by fi xing rates with
“forward contracts”.
AIPP CONSUMER GUIDE 26