I reserved a Spanish home and now I need to pay for it!
Smart Currency Exchange answers a reader question:
I have just paid a reservation fee for a property in Alicante, Spain, and now need to send around 100,000 euros to the Spanish bank account of my lawyer in order to complete. I still have the funds in pounds and would like to know my options for transferring money to Spain, ensuring I get the best exchange rate possible between now and completion.
“Firstly, congratulations on buying in Spain; you must be excited about spending time or moving there – what a great start to 2013!
Your situation is typical of many of our clients. The first thing to do is open an account with us, so we’re ready to make a transfer or agree a contract when the need arises. Timing counts for a lot when it comes to buying currency. Take 2012 as an example: in January, the interbank exchange rate was around £1/€1.19, before rising to £1/€1.28 by the end of July and then settling to around £1/€1.24 by December. This means that the cost of a €100,000 property in pounds fluctuated by almost £6,000!
There is always speculation about which way the rate will go. You’ll have read how problems in the Eurozone helped to drive down the value of the Euro, however noone can say if and when the pound will reach levels seen in the summer, especially given the UK economy is as fragile as much of the EU. And take the current rate – it’s back down to around £1/€1.19.
Given your situation, we could suggest a few ways for buying your Euros. Firstly, you could wait until the final completion date is due and risk the pound gaining or holding its value against the Euro and simply buy your Euros with a spot contract. This could work in your favour, but if the pound starts losing value before you complete, as we’ve seen in the last week or two, the cost of your property in pounds will increase. One thing you can be certain of is we’ll offer a better exchange rate than your high street bank in the UK.
Alternatively, to fix an exchange rate and get the added peace-of-mind that the price of your property will remain the same in pounds as well as Euros, you could take out a forward contract with us. As a Smart client, you can agree with us an exchange rate for the full €100,000 – based on the rate on the day you speak to us. That means that even if the pound weakens, you still get the agreed rate. Typically, we will ask for a 5-10 per cent deposit of the total transaction when placing a forward contract, with the remainder payable on an agreed date. Afterall, when you purchase a property in the UK, you sign on the dotted line because you know how much your property will cost, so why take an unnecessary risk when buying in Spain?”
Lastly, you could use a combination of a spot contract and forward contract, so spreading the risk of the pound weakening. We’ll happily talk through your options with you in more detail.
For more information on how Smart Currency Exchange could save you money when sending money between your UK bank and an overseas bank, download our free report.