Make currency work for you
If you are looking to buy or sell your French property, careful planning and a sharp eye on the exchange rate is essential, says Nick Jones
With the euro continuing to provide uncertainty for thousands of expats with investments in France, many have been forced into some careful forward planning in an attempt to manage their exposure to the crisis.
It won’t have escaped many people’s attention recently that the eurozone has been facing its darkest hour to date. As a key player in this economic crisis, France has felt the full force of the problems. For the first time in its relatively short history, the possible break-up of the single currency has been talked about as a potential reality. This has meant that anyone with property interests in France has had to sit up and take the situation seriously.
“The euro crisis has got everyone worried,” says Elisabeth Dobson from the foreign exchange company, World First. “Meanwhile, the UK has continued to churn out shaky economic data and, as a result, the relative value of the euro versus the pound is proving difficult to predict at the moment.
“The subtext is that this instability in the foreign exchange market is putting increasing pressure on homeowners in France, and elsewhere in the eurozone. Currency markets are subject to fluctuations on a daily basis and rates can move by as much as 10% in the space of just a few days.”
The problems in the eurozone which have hit the headlines this year are nothing new. Difficulties in the global economy have caused significant variations in the value of international currencies in recent times. When it comes to large sums of money being transferred – for things like property purchases or mortgage payments – that kind of deviation can make a serious impact on the amount of money you end up with.
“For anyone involved in making international money transfers of any kind, whether buying or selling, staying up to date with the latest information about where the rates are going is very important,” adds Dobson. “Getting access to market analysis and staying on top of the economic news is certainly a good idea. However, looking up one of the few companies who are well positioned to help control your exposure is also advisable.”
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Most people still use their banks to try and secure a good spot rate (the rate to move money on the day). But by using foreign exchange specialists you will be able to access better exchange rates. You can also utilise a strategic approach which will mean you can still benefit if exchange rates move in your favour in the lead-up to the transaction date. When it comes to helping private individuals, the banks have a limited range of services available and risk-management strategies are usually reserved only for a select few of their top-tier clients.
The reality is that for many expats, the dream move to France has come under pressure in the last few years, as the global economic downturn has affected the value of their homes and mortgages.
The values of both the euro and the pound have been engaged in a tug of war throughout the last 12 months and beyond, with the UK’s economy continuing to feel the strain too. It all makes for an unpredictable climate all round; one which has prompted many British owners of French property to take decisive action.
In the summer of 2011, with exchange rates moving ominously on a daily basis, John Sargent and his wife Claudia decided to sell their property in Paris. The couple were becoming increasingly concerned about the European economic crisis, with the sale still pending and a transfer date not likely to be confirmed until January 2012. The couple were worried about how much the unstable euro was going to end up costing them in terms of profits from the sale.
“The situation in Greece had been on the news since the beginning of the year and we were well aware that the euro was under threat,” explains John. “However, by September and October the state of affairs seemed to be getting more and more serious and we were concerned about the rates moving against us in the lead-up to transfer date.”
The couple decided to take action and booked a forward contract with World First, basically fixing the exchange rate in advance to avoid any further nasty surprises and guarantee the value of the income from the sale in advance.
“It turned out to be a good move, with the value of the euro continuing to fall after we locked in our rate at 1.177. By the time the transfer date came around it had moved to 1.2147 – meaning that we ended up saving over �5,500 on the exchange rate alone. Needless to say, I was pleased to have been able to beat the markets.”
It really doesn’t matter whether you are buying a new home in France, or looking to sell, like John and Claudia Sargent did. The fluctuations in currency values need to be taken seriously so as to avoid any unnecessary losses or extra costs that can occur.
Obviously, when looking to use a broker it’s important you are careful who you use. There are various foreign exchange companies to choose from when it comes to finding forward contracts, but for additional peace of mind it helps to use a broker that is authorised and regulated by the Financial Services Authority (FSA).
If you’re involved in large transactions of any kind, getting advice from a dedicated currency company is certainly a good move. There are smarter ways of moving your money than simply going to your bank. With the markets continuing to fluctuate dramatically, keeping your options open when it comes to forward planning certainly seems to be a sensible thing to do.
Beat the currency markets with the right products
• Spot contracts: If you already have the funds in place, you could arrange a spot transaction. This is simply the exchange of one currency for another at the current market price where the settlement happens within two working days. A foreign exchange broker should be able to get you a significantly better exchange rate for this transaction.
• Forward contracts: A forward contract allows you to fix a rate now for a date in the future (up to two years ahead). This means the rate is fixed regardless of exchange rate movements, thereby protecting you if the exchange rate moves against you.
• Currency options: Like a forward contract, a ‘currency option’ allows you to exchange one currency for another on a future date, thereby protecting you from negative movements in the exchange rates. However, with an ‘option’, if the rate then moves in your favour you can still take advantage of this. Not all brokers can currently offer currency options to clients as it requires additional FSA authorisation.
• Regular payments: If you will be exchanging a set amount of funds on a regular basis, for example for mortgage payments or pension transfers, you can set up a regular payment order that will automatically transfer the funds on a regular basis.