Worried about being at the mercy of the markets during your property purchase?
Posted on 4th August 2017
Matt Harris from Cambridge Global Payments helps you take control…..
In the immediate aftermath of the Brexit vote, Sterling dropped by over 20% against the euro, causing serious concern to those living in France with an income still in pounds from the UK. These people have suffered what effectively amounts to a pay-cut, whether that income is from pensions, investments or renting out their properties in the UK. There is no simple, quick or easy way around this fact, but there is plenty that those affected can do to minimise the impact on their way of life.
Firstly and most importantly, it seems likely and logical that we are perhaps over the worst of the shocks. We have seen the Brexit vote, the activation of Article 50, as well as a general election in the UK, and a presidential election in France – the latter marking the first time in recent history when polls have actually been correct!
Is another 20% drop likely? Well, no, as there are not any potentially historic events on the horizon, but currencies can move by amounts like this over a period of six to 12 months without any specific impetus. It will be pleasing to hear for many, that the upcoming events we have over the next year are considerably more likely to cause turmoil on the continent, rather than in Britain, meaning that the effect on the currency is more likely to be Euro driven.
Looking more at how individuals can take control, there are several fairly easy solutions expats can use to get a little bit extra out of the exchange rate.
Firstly, whether you are transferring small or large amounts, you can use a currency specialist, rather than a bank. Currency brokers can offer rates up to 5% better than those offered by banks, and they often have little or no charge for their services. If you send across a pension of £1,500 each month, it could easily be costing you over €1000 over the course of a year compared to using a currency broker! Currency brokers are experts in their field, and deal with such transactions on a regular basis, so there is no need to be apprehensive about using their services. They should also be authorised by at least two regulators in the UK who oversee their practices, so your money is safe.
Brokers also often have analysts or research teams who can keep you informed as to the current events, and what effects they might have on markets, so you can arrange your transfers the day before major events like Brexit, rather than the day after.
The second thing you can do if you have income in a different currency to that which your country uses, is something called a ‘forward’ arrangement, where your exchange rate is locked in for a period of time, so you know when you come to do each regular transaction, you will receive your expected number of euros, regardless of where the exchange rate is sitting at the time. It is important to remember that if you lock in like this, you will receive your pre-agreed exchange rate no matter where the rate sits. If it goes up, you will actually be worse off with a forward arrangement, and better off if the rate goes down. The purpose of this type of contract is not to speculate on which way the market will turn, but to remove this risk entirely and set your budget at a current level. Such a contract normally requires a deposit which is refunded upon completion. It is important you discuss the pros and cons of this option with a specialist before committing to it, as these contracts are not suited to everyone.
Thirdly, you can also use market orders to capture levels if they only become achievable for a split-second, or in the middle of the night when markets are trading elsewhere in the world. This allows you to be more ambitious with your targets. If you would like to buy a sum of euros at a rate of 1.30, for example, you can place such an order in the market, and it will be automatically triggered should it become achievable either in a general upward trend, or a momentary spike in your favour. You can also use ‘stop losses’ at the bottom of the market, which, as the name suggests, will stop you from losing should the market take any unexpected falls.
It would be easy to think that exchange rate turmoil might be over if political events are behind us, but we are still far from calm seas. Looking forward to the next few months, there is plenty going on, though most of it on the continent, rather than in the UK. We have German elections in September, a possible Greek debt crisis looming (again), plus the potential for further quantitative easing both in Europe and the UK. As always, economists will be keeping an eye on growth, inflation, unemployment and confidence indicators, all of which will affect the rate. Interesting times ahead.
Come along and discuss your plans with Cambridge Global Payments on stand 20 at The French Property Exhibition at Olympia. Register now for free fast-track entry tickets