In recent months, the euro has been at an all-time low against the pound, making now a great time for Britons to buy property in Europe. It seems we can’t pick up a newspaper without being told how we can save money when snapping up Spanish villas. Indeed, with new government legislation freeing your pension stashed in annuities, now could be a great time to invest in European property.
However, new data commissioned by OFX shows the majority of Britons are still uncertain about taking the leap.
Rumbling EU issues – like the threat of Greece or Britain leaving the EU, ‘Grexit’ and ‘Brexit’ respectively – are actually putting many off European property, rather than convincing them to take advantage of the weak euro. Moreover, 66% of those aged over 55 think overseas property is not a secure investment.
This suggests Britons lack confidence when buying property abroad, and don’t know how they can make the most of currencies, including the euro’s current weakness.
These simple tips from Jordan Tilley, head of UK and Europe at international currency transfer specialist UKForex, can help demystify currency, helping you avoid losing money and use foreign exchange to your advantage when buying abroad.
Where to begin with a property overseas
Purchasing a property overseas is always a huge decision, and many different factors need to be taken into account. While the full list can vary by region, country and reason for purchasing, the most important three to take into consideration when it comes to making the payments are:
- Getting to grips with currency fluctuations
- Ensuring cost-effective international money transfers
- Understanding your payment options
Getting to grips with currency fluctuations
One of the first things you’ll need to look into is the cost of your target property in pounds and ensuring that you are transferring money for your deposit or mortgage payments (or, if you are lucky buying it outright!) at times when the property will still be within your budget.
The amount you are spending on the property in euros may be fixed, but the amount it will cost you in pounds will change, depending on when you need to transfer your money, as the relative values of the currencies change against each other overtime.
The value between two currencies is the exchange rate. It affects the international value of your pounds, so it is vitally important to understand and stay on top of it. Our survey found that 40% of Britons don’t understand the impact exchange rates can have on their finances.
The good news is that you can protect yourself from fluctuations between currencies (called currency risk) and information on exchange rates is readily available.
Head to sites like Bloomberg, Google Finance or XE.com and get ahead on the current value of the pound against the euro. An understanding of what has been happening over the last six months is extremely useful for setting realistic expectations for where the currency might be heading, and budgeting around that.
There is no harm in checking every day to make sure that there are no surprises and that the rate is still aligned with your budget. One steep change in the euro or pound can easily throw you off.
Ensuring cost-effective international money transfers
Once you have a handle on currency yourself, it’s time to pick an international money transfer provider, who can make your transfers for you. Many people don’t know about the variety of international money transfer providers available and assume they should make these through their bank. Indeed, our survey found that 39% of Britons admit to not knowing the cheapest way to transfer money abroad.
With basic guidelines and some research, you can save a bundle when choosing your transfer provider.
As a general rule, banks do not provide the most cost-effective method of transferring money abroad. A bank will typically quote you exchange rates that are not the most favourable available. On top of this, while most financial institutions will charge a fee on your transactions, they vary from institution to institution and banks sometimes do not advertise these.
Instead, try getting a few quotes from established, FCA regulated international money transfer companies. Just be careful, as some companies may entice you in with super competitive rates, but over time may push up their pricing, between the quote and completing your transfer. Ask questions around pricing transparency and rate consistency before you do sign up, as continually shopping around for better exchange rates is a huge time-sink.
Understanding your payment options
Once you have a provider and are ready to send your money, they should talk you through your payment options, so you can choose the one that’s right for you. There are three main options available:
Simple international money transfer – This is the most widespread and straightforward method. This type of transaction is great if you need the money to be transferred right away at the current exchange rate.
Forward contracts – Forward contracts allow you to fix the current rate for a transfer you want to make on a set date in the future. This is a great option if you are satisfied with the current exchange rate today and means you don’t have to worry about changes in the currency markets affecting your budget.
Limit orders – A limit order allows you to arrange for a money transfer to take place when the exchange rate reaches a certain, favourable level. Having your currency specialist watch the rate via a limit order can help maximise your budget.
Buying your home abroad is a big decision. When you fall in love with your dream house, its purchase is an important step forward to a happy, fulfilled retirement. Don’t make it stressful by losing out on exchange rates and ensure you educate yourself on currencies.
Jordan Tilley is the head of UK and Europe at OFX, an international currency transfer specialist
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