Mortgage Repayments

Fixing an exchange rate for your mortgage payments in advance could save you money and hassle, explains Rajesh Agrawal...

Although buying a property abroad may be the last thing on some people’s minds given the current economic climate, for others it is still a dream they plan to pursue this year, whether it is their idyllic second home or a long-term investment. Statistics show that we’re all on the move with a recent YouGov survey revealing that 55% of adult Britons were seriously considering settling in another country’. The British Centre for Future Studies has predicted that by 2020, a tenth of the current British population will be living or working abroad. There has also been an increase in the number of Brits buying property abroad solely for investment purposes. Over a million own second homes in France and Spain alone. In France especially, property prices have been soaring for a number of years, although these levels of growth are not expected to continue. Buying an overseas property is a big commitment and, in the current climate, completing a deal while incurring as little cost as possible can be a real challenge. With the poor performance of sterling over the past six months and the constant fluctuation in rates, it has become more difficult to predict when it is a good time to purchase a French property, causing problems for those who are in the process of, or are planning on, buying a home in France. Making mortgage payments Once a French property has been purchased, making the regular monthly mortgage payments quickly and easily is a necessity. Many property owners will go to the bank to arrange for these regular payments. But banks are not always the best choice as they can offer poor exchange rates and charge transfer fees. Bank transfer fees can range from anywhere between �10 to �30 per transaction, and their exchange rates can be up to 6% above the rate they receive themselves. Foreign banks may also charge a landing fee of up to 0.4% of the sum transferred. For example, if someone was paying out a mortgage of �700 per month in sterling, then they could be paying an extra �50 each month (�25 on poor exchange rate and �25 on transfer fees). Over 12 months this equates to �600, a large amount of money to be losing each year. On top of all these charges, if there was a need to make any changes to the monthly payments with a bank for any reason (for example a change in the interest rate), it may not be a quick process. Mortgagees often need to fill out numerous forms and make appointments in advance to confirm the changes, making the process both time consuming and stressful. If homeowners pair with a foreign exchange company, they can expect this process to be more manageable. Foreign exchange companies offer beneficial commercial rates rather than the retail rates charged by banks. Also, they often don’t charge commission or transfer fees. Foreign transfer companies also offer different currency contracts to suit individual circumstances. These include a forward contract, where the exchange rate is fixed for a set period of time and an unhedged contract (spot contract), where the transaction is carried out with the prevailing (spot) rate at any given time. Some foreign exchange companies offer hedged contracts to private clients, although these are more commonly applied to business transactions. Hedged contracts guarantee a certain rate, but the client can choose to buy at the prevailing rate if this proves more advantageous. Forward contracts are the most common because consistent rates give buyers greater peace of mind and control over their money. Unhedged and hedged contracts are better for one-off payments when the buyer believes the exchange rate will improve in their favour. A good company will offer a personal account manager to guide the property owner stepby- step through setting up the payments for their mortgage. They can keep clients up to date with the latest currency changes that could affect them, as well as advise on whether it is a suitable time to buy currency. These services should be offered at no extra cost, and could save property owners money in the long run, especially if drastic market changes are picked up on early and a good exchange rate is frozen in advance. Buying a property abroad may be one of the most financially challenging decisions you make this year but, by researching your options carefully, you could mitigate any risk and even save money – both in the short and long term. Rajesh Agrawal is CEO of RationalFX Tel: 020 7220 8191 www.rationalfx.com