Foreign Exchange

How do currency price fluctuations affect your property buying?

Let’s take an example, you are a British resident and are buying a new villa in Tenerife. As the villa is new, you would not be paying the whole amount in one go. You will need to put some deposit down with the developer, and then further stage payments (installments) during the construction over the next 24 months, with a final payment upon completion. You have agreed on a price for the Villa and all the payments will have to be made in Euros. However, the actual cost of the villa in sterling will be dependent on how many euros you are getting to the pound, at the time of purchase. So, if Pound Sterling strengthens during those 24 months, the actual cost will decrease but if the Euro strengthens then your costs will increase. You will need to shell out more Pound Sterling than what you estimated for the same amount of Euro. Which means that your property has just become more expensive! Now, Just to give you an idea of the loss you could incur, the price of buying Euros was 1.5387 to the pound on the 1st March 2003; and two years later, on 1st March 2004 it was 1.4174 to the pound. (Source: OANDA). The property you thought would cost you £129, 979 ended up costing you £141,103. A loss of £11,124! With Rational FX, you can fix the rates for up to 2 years in the future. We can watch the market on your behalf and generally guarantee that 99% of the time we will give you a better rate then the bank.

The currency provider will generally offer three types of contract. They will study your requirements and outline the best options; below is a brief description of what transactions are available:

Spot

This is the most basic and popular type of transaction. It’s a basic “buy now, pay now” system. This is done when the client wants to purchase the currency at “today’s” rate, the client should arrange to have cleared funds in our account within 48 hours. We will then transfer the agreed amount of currency to the account specified by the client. It will take anything up to two working days to clear the funds in the foreign account.

Forward

This is when the client can secure themselves into a rate for anything up to twelve months down the line. The main difference between forward and spot being, it uses a “buy now, pay later” system. As currency markets tend to fluctuate, this can seriously affect the cost of what ever you wish to purchase. That’s why a forward transaction can be used to take the clients risk out of the market.

Stop Loss/Limit orders

In this type of contract, you place an order with your desired exchange rate “upper limit”; you can also secure yourself against a downside in the market (stop) by also specifying a “lower limit”. As soon as the market hits that rate, be it any time of the day, the currency is automatically bought for you. Call RationalFX now on 0845 130 6362 and see how much they can save you. Alternatively, fill in the following form to be contacted by RationalFX.