Post on 10-May-2020
transcript
Table of contents
Introduction.............................................................................................................................4
Buying your overseas property.......................................................................................... 4
How the rate of exchange will affect the cost of your property..........................................4
Timing is everything!.......................................................................................................... 4
Planning ahead.................................................................................................................. 4
Regular payments..............................................................................................................5
Remortgaging.................................................................................................................... 5
Selling your overseas property.......................................................................................... 5
Buying property abroad .........................................................................................................6
Why use a foreign currency exchange broker?.................................................................6
How shifts in the exchange rate affect you........................................................................7
Reducing your risk ............................................................................................................ 8
Options for currency exchange.............................................................................................. 9
Buy a lump sum of currency needed now (or soon) .........................................................9
Order currency at a fixed rate (for a later date)................................................................. 9
Order currency when it hits a designated rate.................................................................10
Stop loss orders............................................................................................................... 11
Opening an account with a currency exchange specialist ..................................................12
Making regular transfers...................................................................................................... 13
How does the international money transfer process work?.................................................14
Step 1 - Agreeing the rate................................................................................................14
Step 2 – Invoicing............................................................................................................ 14
Step 3 - Transferring the money...................................................................................... 15
Why choose Moneycorp?.....................................................................................................16
Get live prices today!....................................................................................................... 16
Would you like to talk to Moneycorp?..............................................................................16
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Introduction
Whatever stage you're at with the purchase of an overseas property, be it buying,
re-mortgaging or selling, fluctuations in the currency market will affect the amount of
any transaction.
This guide will help explain the different ways to make international money transfers as
well as how fluctuating exchange rates can affect you, and will also introduce some tools
to protect your currency transfers.
Buying your overseas property
When purchasing a holiday home or investment property, timing is crucial. You are buying
a large amount of foreign currency and trading at the right time can save money and help
your financial planning.
How the rate of exchange will affect the cost of your property
Daily swings of three or four per cent can happen, and these shifts will massively impact
the value of any overseas property purchase.
Timing is everything!
Exchange rates move all of the time and this will have a great affect on how much
currency you end up with. As an example, in December 2012 the GBP/EUR rate was 1.24,
but in February 2013 this had dropped to 1.14. These movements play a big role in
transfers and that’s where a specialist currency broker can help. A currency expert will be
able to give you guidance on the markets and help watch the movements in the exchange
rate. They can set up market orders where you can define the desired rate you want to
achieve. Once the market hits that rate, a deal can be triggered. Some currency specialists
also offer forward contracts where you can lock into a rate for up to 2 years.
Planning ahead
You can save significant sums of money if you think ahead. By leaving payments to the
4Buying Property Abroad: dealing with currency exchange © 2013 Just Landed - www.justlanded.com
last minute you are forced to accept the rate the market offers that day. While high street
banks are often the first port of call for most international property payments, foreign
exchange specialists can offer homebuyers superior rates, as well as a more
comprehensive range of services that will help protect them from adverse currency
movements. A foreign exchange specialist will be able to help take the hassle out of all
your international transfers, whether they are one-off or regular payments.
Regular payments
If you need to make regular international transfers to cover mortgage payments or
maintenance costs, you can arrange an automated 'regular payment plan'. This type of
service helps facilitate regular overseas transfers, as the funds are collected by Direct
Debit and automatically sent abroad. We recommend you ask your advisor about the
option of fixing exchange rates for a set time period.
Remortgaging
Owners of property abroad who are feeling the economic pinch might be tempted to sell
their overseas homes to help ease their financial situation. Many are faced with either
decreasing house prices, which could mean cashing in too cheaply, or a lack of demand in
the market. An alternative option to selling your foreign property is to remortgage it and
use the proceeds as a financial cushion.
If you have a property overseas, you should review your mortgage from time to time. Just
like when buying a property, it is important to take into account the currency markets when
re-arranging your mortgage.
Selling your overseas property
Although many people think that buying an overseas property will be their last experience
with the property market, this is not necessarily the case. You may find that another
property comes onto the market that you want, or see an opportunity that you wouldn't
have elsewhere. When repatriating, and sending your funds back home, it is important to
transfer your foreign currency back at the best possible time to ensure you get the best
rate. In today's economic climate, it's more important than ever to make the most of
your money.
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Buying property abroad
So you’ve found your home abroad and you want to start the process, which involves
transferring large sums of money. The question is, how will you make that transfer? Many
people go straight to their bank when faced with an international transfer without even
considering a currency exchange broker.
Why use a foreign currency exchange broker?
Changes in the foreign exchange market occur every minute of every day. Unlike banks,
foreign exchange currency companies deal with live exchange rates. They can get much
closer to the interbank rate (the rate that banks trade money between one another) than
banks themselves. Banks can create large differences between the rate in which they buy
and sell currency to ensure they are always in profit, in spite of the rate they sell for.
The main focus of foreign exchange companies is mass currency exchange. Special
‘wholesale’ rates can be set, without a middleman and so savings to the client are
maximized. In addition, not incurring hefty bank transfer fees means savings can be up to
5% for each money transfer made. For regular transactions such as mortgage payments,
these fees can add up.
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Foreign currency specialists can take the headache out of transaction fees and lengthy
transfer times, whilst offering a personal service, tailored strategically to complete your
currency transfers efficiently and maximise their value. For lump sums such as down
payments for property, the savings can be significant.
How shifts in the exchange rate affect you
Exchange rates can be very volatile, and large, rapid shifts in the value of one currency
against another are not uncommon. Even a relatively small negative shift of 5% can make
a huge difference to the amount you receive from the currency transfer. Of course, a
positive shift could mean you end up with a higher return than you expected.
Case study 1
Dealing with several currencies
Robert Hawkins has just agreed to buy a property which is being built in a new
development by the sea in Spain. He is working in Switzerland and being paid in
Swiss francs (CHF), and is selling a flat in the UK to pay for the new house. The
developer requires him to put down 10% of the cost now, €50,000, and then pay the
balance, €450,000, when the building is complete in 12 months time.
As he doesn’t have the cash today, he cannot fix the exchange rate by exchanging it
into euros. The problem is, he knows that at the current exchange rate, he will have
enough euros when he converts the pounds (GBP) from the sale of the flat. But a
negative move of just 5% in the exchange rate will mean that he will be short
€22,500, or a 10% move, €45,000. Such moves can happen in a week, never mind
over the course of a year!
The problem can be summarised in the following way: He knows how much this will
cost him in his home currency if he makes the purchase today, but has no idea what
this will be tomorrow.
He might decide that this is a risk he is willing to take as there is also the possibility
of a positive move in the exchange rate which would mean he ends up better off
than he thought.
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Reducing your risk
To reduce your risk, you could make a contract to buy the foreign currency at a fixed price
on a fixed date – this is called a ‘forward’. You will normally need to put down 10% of the
contract value as ‘margin’ and there is an underlying cost for this instrument. This means
you can guarantee in your own currency how much the house will cost, while not having to
supply all of the money immediately. Currency specialists can provide this service.
If you are a 'sophisticated investor', there are financial products such as options, CFDs
and other derivatives which you could use to hedge against a negative currency
movement and limit your exposure to risk.
There are various other financial tools that can be used for different circumstances. The
best thing to do is discuss your situation with your specialist foreign exchange broker who
will be able to understand your situation, and suggest solutions. Most importantly, they will
be able explain your options in a way that’s easy to understand.
A currency exchange company can also introduce you to a wide range of foreign exchange
contracts. If you wish to target a rate that is not currently on the market, market orders
(instructions arranged beforehand to buy or sell a currency when it hits a particular rate)
are available to you.
8Buying Property Abroad: dealing with currency exchange © 2013 Just Landed - www.justlanded.com
Options for currency exchange
Buy a lump sum of currency needed now (or soon)
This type of purchase is known as a ‘spot contract’. Once you have agreed with an
exchange specialist on the best rate, you need to pay the full purchase amount within 2-3
working days. To do this, you can authorise your bank to do a CHAPS (same-day) transfer
into your specialist currency account.
A CHAPS transfer will incur charges from your bank. To avoid these charges, you can
transfer the money via Internet banking which usually takes 2-3 days. Which method you
use depends on the urgency of the transfer.
Once the money arrives in your currency exchange account, your broker will transfer it into
the currency you’ve chosen and deliver it to the specified destination account.
Order currency at a fixed rate (for a later date)
This option is suitable for people who have regular payments and who want to protect
themselves against sudden changes in their chosen exchange rate.
Currency markets can be quite volatile, and even a small change in the exchange rate can
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significantly increase the price of a property abroad. To protect yourself against future
increases in the rate, it may be better to fix the rate now. This allows you to fix your budget
and avoid unexpected increases in costs.
This type of transaction is known as a ‘forward’ and allows you to fix the rate for several
months. You usually have the option to fix the rate on a particular date, or choose a fixed
rate for a set period of time, for example three months.
To secure the rate, you will have to pay a deposit (usually 5-10%) within two days of
placing the order. The money is held in your specialist currency account and paid on the
date specified at the rate you fixed in advance.
Order currency when it hits a designated rate
This option is ideal for people who don’t need to move money at a specific time. If you
know you need to move money over the coming months, your currency broker will be able
to advise you on an achievable beneficial exchange rate. When the market hits the
predetermined rate, your broker will buy the currency. This is known as a ‘limit order’.
Currency Case study 2
Transfer when the market hits a pre-decided rate
Mr Johnson is returning to the USA from the UK. He knows the dollar has been
strengthening over the last year and that the current rate is poor. As he didn’t need
all his money in the USA at once, he decided, with his currency advisor, to take it
over in stages.
He decided to transfer £85,000 when the rate reached 1.90 (the rate at the time was
1.56) so when it hit 1.90 a couple of months later, his broker transferred his money
for $161,500 dollars. If he hadn’t waited, he would have only received $132,600. In
effect, he gained $28,900 by using a limit order.
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Stop loss orders
Stop loss orders let you budget for a minimum exchange rate (a rate lower than the one
set at the current market level) at which you would be willing to trade. This allows you to
protect the value of your currency when the exchange rate is moving against you. It
protects you from paying more than needed, whilst being pro-actively monitored by
currency professionals at all times.
If you use a stop loss order, whenever you trade you will be protected against large,
sudden losses if the exchange rate moves negatively against you.
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Opening an account with a currency exchange specialist
Most currency exchange companies allow you to open an account online, for free, and
with no obligation. Once your account has been approved and is live, you can discuss your
needs with a specialist broker.
It pays to open an account even if you don’t plan on transferring money right away. This
allows you to be prepared for when you want to make a trade. If you don’t open an
account, a broker can only give you an indication of the rate you could receive, not the
live quote.
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Making regular transfers
If you need to transfer sums of money abroad on a regular basis, you can set up a regular
overseas payment plan. These are great for mortgage payments, salary or pension
transfers, tuition fees and property maintenance costs.
When managing your regular international payments, you can choose from
several options:
Fixed domestic currency amount
If you fix the amount you transfer, you will know exactly what is coming out of your bank
account every time. The amount that arrives at the destination will depend on the
exchange rate at the time.
Fixed foreign currency amount
This is the opposite of the option above. You will know what is going to arrive in your
overseas account, but the amount that leaves your home account will vary according to
the exchange rate.
Fix both amounts
You can fix both the amounts, leaving your home account and the amount arriving in your
overseas account.
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How does the international money transfer process work?
Once you have opened a currency exchange account, you will discuss your requirements
with a trader. The process will normally continue as follows:
Step 1 - Agreeing the rate
The trader will quote you the current rate and the cost of the currency for the amount you
need. You can agree to this quote verbally, and once you have made this agreement, the
rate is fixed and cannot be changed.
Step 2 – Invoicing
Once you have agreed to the purchase, you will receive an invoice or ‘contract note’
outlining the exchange details and the account information (the one you have just opened)
where you will need to transfer funds. You will also receive an ‘onward payment form.’ You
need to fill this in so the trader knows where to send the money.
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Buying Property Abroad: dealing with currency exchange © 2013 Just Landed - www.justlanded.com
Step 3 - Transferring the money
Your money will be transferred from your bank to your currency specialist account. You
can do this via CHAPS (same-day transfer, for a fee) or via an online transfer (2-3 working
days, free). The money will then be exchanged into the agreed currency and if it’s a ‘spot
contract,’ transferred into the overseas destination account. For a ‘forward,’ the amount
will sit in the account until the predetermined date and then transferred at the agreed
fixed rate.
Beware of receiving bank charges. Some overseas banks charge a large amount of
money for receiving currency from abroad. It will be worthwhile choosing a currency
exchange company, such as Moneycorp, which limits or eliminates bank fees.
15Buying Property Abroad: dealing with currency exchange © 2013 Just Landed - www.justlanded.com
Why choose Moneycorp?
• Better exchange rates than your bank
• No transfer fees on your transactions
• Expert guidance helping you to transfer at the right time
• FSA authorised - giving you peace of mind
Get live prices today!
Go to Just Landed and open an account today. Get access to live prices and advisors to
help you make the best decisions. No obligations. No fees. No hassle.
Would you like to talk to Moneycorp?
We can call you if you fill out the contact form on Just Landed OR you can call us on +44
207 589 3000 (0207 589 3000 from in the UK). Please quote ‘Just Landed’ to make sure
you get your first wire transfer for free.
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