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AVOIDING CURRENCY FLUCTUATIONS

We have just found a property to buy in France, and have been told that completion will take place in January. We need to pay for the property in euros, and are concerned that from now to the time we complete, the exchange rate will worsen, making the property too expensive. What can we do?

The constant fluctuations of exchange rates are one of the most serious risks for overseas property buyers. You can see for yourself the movements of the pound to the euro over the last nine months.

So, it is easy to see how a combination of volatility in the currency markets and the gap between the purchase contract and completion (which can average about two months!) can pose a severe risk to the value of the transaction. In some cases, the fluctuations can be so extreme that buyers can no longer afford the property.

For example, a potential buyer signed a compromis de vente (purchase agreement) in December last year when the GBP-EUR rate was above 1.16 but only completed early in February, when it dropped to 1.11. This would have created a substantial increase in the property’s final price due to the exchange rate movement.

In fact, for a buyer holding sterling and wanting to buy a property for €350,000, the fluctuation in rate would have meant the real-term cost would have increased by £15,000. So, what can you do to remove the risk and uncertainty brought up by the exchange rates?

In situations like this, the guidance of a specialist company can make a difference. Their expertise will help you understand your options and decide the best solution for you and your budget. The outcome will often depend on your financial circumstances, timeline and ultimately, how you feel about risk – whether you prefer certainty over your budget or to wait and see if the market moves in your favour.

For example, a ‘forward contract’ might be preferable if you are working to a tight budget and prefer certainty as your completion date approaches. It is a popular tool for overseas property buyers as it allows you to fix the exchange rate in advance of your completion – for up to two years – so you can be sure the cost in pounds for your French property doesn’t change.

Alternatively, if you think the market might move in your favour and you’re not averse to taking on the 50:50 risk that it won’t, a ‘market order’ might suit you better. These allow you to track a desired rate and make the transaction automatically, in the knowledge that you are exchanging at your preferred rate, often maximising your budget if the order is fulfilled on time. These can be used with a ‘stop loss order’, which means your transfer will again be made automatically before the rate goes below a certain level, preventing you fro