Don’t use your bank and 6 other simple rules to make your property purchase easier, cheaper and safer
When buying property abroad, usually one of the necessary obstacles is the exchange of a large amount of currency needed to pay for your purchase.
Many people buying abroad still neglect to think about currency exchange until it is too late, and end up paying more than they need to, with added stress levels too. This simple guide from Currency Index will help buyers to get a good deal while remaining safe, and reduce the hassle that can be involved.
1. Think about currency early in the process
Not many people would buy a property in the UK without knowing the price. But, if you go on a viewing trip and put down a deposit without investigating the exchange rate, that’s exactly what you are doing when buying abroad! Before you start to look at property priced in a currency other than sterling, have a look at exchange rates and set yourself a reasonable rate for your calculations. It is better to be pessimistic with your exchange rate, so that when the time comes to transfer funds, you should be under your budget rather than over. A reputable currency company will help you to budget sensibly.
2. Don’t use your bank – you could pay 4% more
Banks’ exchange rates vary wildly. Some are reasonable, some are awful, and there are variations within each bank depending on who you end up talking to when you get a rate. Generally, the banks are not competitive on rate and rely on consumers assuming that exchange rates are fixed in stone. They are not. By comparing with a currency broker such as Currency Index, you can save up to 4% just on the exchange rate. That’s a huge difference of around £5,000 on a €150,000 transfer.
3. Consider fixing your rate in advance
Another service offered by currency companies, is a tool called a Forward Contract. This allows buyers of overseas property to fix an exchange rate in advance, for a payment in the future. The beauty of a forward contract is that only 10% of the sterling is needed to secure a rate, the balance being due when the foreign currency is required. That way, buyers can know exactly what they will be paying in sterling, without actually paying for their currency. Of course, if fixed when exchange rates are good, this can save a significant amount compared to waiting and buying currency at the last minute when rates may have fallen.
4. Allow enough time for your transfers
Another mistake many people make is transferring funds at the last minute for their purchase. Typically this is a problem when using banks to make a transfer, as they are notoriously slow at processing international payments (the average bank clerk has little or no experience in this area). There are also different clearing times abroad in different countries and currencies, so by liaising with a dedicated point of contact at a currency company, you can ensure you are correctly advised on transfer times to get money to the right place, at the right time. Currency brokers will typically send funds 1-3 days quicker than a high street bank, and can provide all the necessary paperwork for you and your lawyer.
5. Avoid paying unnecessary charges
When dealing with foreign banks, it pays to make sure you are not subjected to any hidden charges. For example, in Spain, it is common for banks to charge up to 0.5% of an incoming transfer, just as a fee for receiving it! When sending large amounts this can be punitive. Fortunately, again using a foreign exchange specialist, in most cases the charges can be avoided. Currency companies are experienced in sending payments all over the world and will be able to help you avoid falling foul of charges you might not have even known about. In addition, they will also be able to reduce or eliminate charges in the UK, where banks can demand up to £40 for sending an international payment.
6. Shop around
Many foreign property agents recommend a particular currency company to their clients. There is often a commission payment involved here, and realistically that means the client may not be getting the best possible rate. While a recommended company may seem comfortable, it is worth making one free call to an alternative supplier such as Currency Index to see if you can get a better deal.
7. Be safe
The independent currency transfer industry is now FSA-regulated – but not all companies are regulated to the same standard. In practice, it is safest to use an “Authorised Payment Institution”, as defined on the FSA’s website (under “Payment Service Companies” on the FSA register). Crucially, this means your funds must be held in safeguarded client accounts while with the broker (much like holding money with a lawyer), and that the firm has sufficient capital to meet strict requirements, as well as being run without risky practices. The lower level of FSA registration, “Smaller Payment Institution”, does not guarantee these safeguards, so check on the FSA website before you agree to part with any money. Currency Index was one of the first firms to be granted “Authorised Payment Institution” status when the regulation was introduced in 2009.
Following these simple 7 rules will mean that your overseas property purchase can run more smoothly, cheaply and safely than if you leave your currency transfers to chance. Currency Index’s experienced and friendly staff are available to discuss clients’ requirements without any cost or obligation. For more information call 0800 043 2623 or visit www.currencyindex.co.uk for more information.