Examples of currency transactions when purchasing property abroad
Last January Mr and Mrs C. Lever went on holiday with Mr and Mrs T.Hick to their favourite resort in Spain. They had been holidaying together for many years and had always dreamt of owning their own overseas apartment in Spain. They had purchased their homes some years before and both had risen in value allowing them to relaease some equity by way of a re-mortgage.
The Lever's and the Hick's reckoned that they would be able to rent out the apartment to friends and family when they weren't using them and thus earn some revenue to pay for the payments. Therefore last January they took the plunge and committed to buy an apartment each by placing a 1,000 euro deposit by credit card. The next payment was for 30,000 euro on 25th February and then a final balance of 70,000 euros on 1st April. The total amount of each property was for 100,000 euros.
So why did Mr C.Lever pay £67,499.32 and Mr T.Hick £68,882.67?
The reason is that Mr Lever took time to study the best way of financing an overseas property and devised a strategy to minimise his exposure to fluctuations in the currency markets.
Mr Hick on the other hand had less foresight and just went to his bank when his payments were due. Thus on the 25th February he converted at an exchange rate of 1.475 so 30,000 euro cost £20,338.98
At the same time Mr Lever was able secure a better exchange rate of 1.4850 using a specialist foreign exchange company. So the 30,000 euro cost him £20,202.02.
Mr Lever also realised that the exchange rate was at a very good level and he was told about the various options that were open to him. Being a cautious man he decided that he would like to fix the exchange rate at the same time so that he knew exactly how much the property would cost in sterling. Thus Mr Lever fixed a rate of 1.4800 for the 70,000 euro for payment 1st April. The cost would be £47,297.30 with a 10% deposit now followed by the balance before 1st April.
Mr Hick was more of a gambler. The Exchange rate started to worsen and he was unaware of the various courses of action available to him. He therefore endured a miserable few weeks hoping that the exchange rate would improve in his favour. Unfortunately the exchange rate kept getting worse and the actual exchange rate achieved was 1.4420. Thus the 70,000 euro cost £48,543.69.
Therefore the exact same property was £1,383.35 more expensive for Mr Hick. So it is clear that it is important to do your homework when buying an overseas property and use the services of a reputable foreign exchange company.