Why exchange rates shouldn’t hold up your plans

This year has been pretty boring for the pound. Good! There were no major shocks to the system, no knock-out blows. While it hasn’t been strong and stable exactly, property buyers can be confident about buying in 2018, so long as they protect their budget.

The Chinese saying “may you live in interesting times” might sound like a slightly odd way to say hello, but it is actually intended as a curse. 2016 was most certainly an interesting time, but the past year has been relatively uneventful – thank goodness for that!

Although we have seen its strength against the euro vary between €1.20 at its height in April and €1.08 at its depths in August, and between US$1.35 and $1.20, a 10% swing hardly compares with the 25% swings of 2016.

Even so, in a survey that we conducted for readers earlier this year, which some 2,500 people responded to, about a third of our readers said they were waiting exchange rates to improve before making their move. In the months since the survey was conducted the pound has barely moved, but house prices abroad certainly have.

Spain, Portugal, France, Ireland and the USA also saw property price rises this year that exceeded the effect of the weak pound.

Spain, Portugal, France, Ireland and the USA also saw property price rises this year that exceeded the effect of the weak pound. In France prices rose around 2% in that time nationally, but closer to 5% in many of the British favourites. In Portugal prices are rising by around 3% each half year. In Spain, Mallorca became the first area to see property prices exceed the pre-crisis level, while Barcelona homeowners enjoyed prices rising by as much as 10% over six months. In Ireland prices are rising fast and in the USA by 1.4% just between July and September.

And in the UK? According to our partners at Rightmove, we can expect just a 1% rise over the whole of 2018.

So while currency volatility has taken a €150,000 property up and down by about £10,000 this year, those are the unpredictable extremes and the average has been reasonably stable. By delaying a purchase all potential buyers have done is miss out on capital growth and, more importantly, all the joys of overseas property ownership.

It is also worth pointing out that by effective negotiation you can often get a good reduction on prices. Some sellers will, understandably, try to take advantage of an international buyer that they may perceive as wealthy. Read this guide on How to Negotiate Abroad for help there. Certainly, the relative weakness of the pound compared to two years ago can be a strong bargaining chip for you, especially if sellers are returning funds to the UK and making money from the weaker pound. Again, not really a good reason to delay an exciting purchase abroad though.

Suppose that 10% swing had all occurred between you putting down a deposit and completing. Could you have found the extra £10,000?

What buyers should certainly be wary of is uncertainty and risk. As mentioned, a 10% swing in the value of the pound is about average across an average year. But the line on the EUR/GBP graph will be jagged, up and down constantly but usually returning to the mean across the whole of the year. That is certainly where we are this year – essentially back to the rate last Christmas. But suppose that 10% swing had all occurred between you putting down a deposit and completing – that is what we call currency risk. Could you have found the extra £10,000?

We don’t know exactly what will happen to the pound in 2018, but we do know two things. Firstly, that it will be up and down; monthly, daily and hourly. Secondly, that we can protect you from that volatility. The safest response is to protect your budget with a forward contract.

For a detailed explanation of how you can protect your protect budget from currency risk, read the Property Buyer’s Guide to Currency.

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