We’re in the middle of one of the busiest periods for overseas property sales, as viewing trips made in September yield results and owners seek to offload properties before winter sets in. So if you have made that offer and had it accepted, how should you organise your finances?
Congratulations – your offer on an overseas property has been accepted. Now things get serious!
Over the next few weeks you’ll probably be signing contracts, paying a deposit and ultimately transferring the balance of the purchase price. If your money is in pounds but your new home is priced in euros, that also means the amount you eventually pay can change while the legal process is ticking along.
So, with potentially 90 days or less until completion, what should you do with your money – and when?
First, how long have you actually got?
Buying processes vary between countries and individual purchases, but 90 days is a useful benchmark.
Buying property in France, notaires put the average buying period at around two to three months. In Spain, an arras deposit contract commonly gives buyers 30 to 90 days to reach the final deed, although the timetable is agreed between buyer and seller.
In Italy, the parties determine their own completion date, but 60 to 120 days between preliminary contract and final rogito is common practice. A straightforward Greek home purchase may complete in around six weeks, although more complicated transactions can take considerably longer.
Whatever the country, ask your lawyer or notaire for your expected payment dates now. Your own purchase timetable is more important than any national average.
As soon as your offer is accepted: calculate what you really need
Start with the agreed property price, but don’t stop there.
Add the taxes and property buying costs you’ll need to pay, plus legal fees, surveys and other professional costs. This will normally amount to around 10% in European countries, but that depends on many factors, including whether it is a primary home or a second home, so check with your estate agent.
Keep money aside for moving, renovations or furnishing and maintain an emergency reserve rather than putting every available pound into the purchase.
Then establish the key figure: how much money will you need to convert into the purchase currency?
You should also know when each payment is due. You may need a reservation payment or deposit relatively soon, with the much larger balance following at completion.
Get your purchase funds ready
Next, establish exactly where the money is coming from. It could be savings, investments, the sale of your UK home, an inheritance, pension funds or a combination of several sources.
Consider timing as well as value, and how liquid it is, i.e. available to be spent. If £200,000 of your budget depends on completing your UK house sale, that money isn’t available until the sale happens.
Prepare your source-of-funds documentation too. Large international property transactions are subject to anti-money laundering checks, so you may need bank statements, investment records, probate documents or evidence from a property sale.
Getting these ready early can prevent an administrative problem becoming a completion-day problem.
Decide how much currency risk you want to take
Once you’ve agreed a price in another currency, exchange-rate movements can change what your property costs in pounds.
Suppose you’re buying for €300,000 and the sterling cost is around £250,000. A 3% movement against you would represent roughly another £7,500.
There are several ways you can approach that risk. You could exchange some or all of your money relatively early, removing the risk of subsequent movements on that amount.
You could wait until the money is required. That gives you the possibility of benefiting if the exchange rate moves in your favour, but also leaves you exposed if it moves the other way.
Another option is a forward contract, which can allow you to fix an exchange rate now for currency you’ll need later. That gives you greater certainty about the sterling cost of the purchase, although terms and conditions apply.
You can also combine approaches – fixing or exchanging part of your requirement while leaving some exposed to future movements.
There isn’t one approach that suits every buyer. The important thing is knowing how much an adverse currency movement could cost you and deciding how much uncertainty you’re prepared to accept.
A month before completion: make sure the money can move
Don’t wait until the final week to discover what is required to transfer a large sum overseas.
Make sure your currency account is open, identification checks are complete and source-of-funds documents have been accepted. Check any transfer limits or security procedures with the institution holding your money.
You should also be particularly alert to payment fraud. If you receive new or amended bank details by email, independently contact your lawyer, notaire or other professional using contact details you already trust before transferring anything.
The final week: don’t improvise
By now you should know exactly how much needs to be paid, where it is going and when it must arrive. Confirm all three.
Remember that completion day is generally when your money needs to have arrived, not the day to start working out how to send it.
Keep your transfer confirmations and don’t abandon a carefully considered currency plan because of a dramatic headline or one day’s market movement.
Your 90-day money checklist
☐ Confirm your expected completion and payment dates
☐ Calculate the total amount you’ll need, including buying costs
☐ Confirm where every part of your purchase funds is coming from
☐ Prepare source-of-funds documentation
☐ Calculate how much foreign currency you’ll need
☐ Decide how much exchange-rate risk you’re willing to accept
☐ Complete account and identity checks well before payment is due
☐ Independently verify bank details before transferring money
Buying abroad in the next 90 days?
Smart Currency Exchange can help you plan your property payments around your completion timetable. You’ll have a personal account manager to discuss how much you need to transfer, when you’ll need it and the options available for managing currency risk, including forward contracts.
Get a free quote from Smart Currency Exchange.
The information in this article is provided for general guidance and does not constitute financial advice. Currency markets can move both up and down. Forward contracts may require a deposit and are subject to terms and conditions.
