Currency planning is an important factor when considering your property investment strategy. What if sterling gets stronger, or gets weaker against the Cyprus Pound, Euro, Swiss Franc or US Dollar? How will it impact my investment and what can I do about it? What happens to my mortgage?
nvestinCyprus.com have pre-empted all of those questions and our clients have full access to our currency broker if they choose to take up the offer. They are advised on whether to buy Cyprus Pounds on the spot, forward buy or place limit orders thus potentially saving substantial sums.
We set up a currency account for free on your behalf which again saves you money on any transfers while your broker is conveniently at the end of a telephone for advice and assistance.
Below is a useful article from today's Financial Times:
"While the UK property market shows signs of a modest rebound, our ardour for buying holiday homes abroad is undiminished. Latest estimates suggest around 1.5m people in the UK now own a place overseas.
Europe remains the favourite location, with new hotspots such as New Zealand , Bulgaria and Canada emerging, according to HIFX, a currency broker.
But many purchasers still enter into property transactions with a reckless attitude. Simon Conn, managing director of Conti Financial Services, says individuals frequently overlook the issue of fluctuating foreign exchange rates. It typically takes six to eight weeks to complete a property purchase abroad, according to HIFX. Currencies can fluctuate dramatically over such a period. According to HIFX, a €250,000 property bought on March 1 2006 would have cost £169,837. But by April 5, the same property would have cost £175,523, following a healthy rise in the euro relative to sterling.
According to David Reith, divisional director of currency brokers Moneycorp, 60-70 per cent of purchases are new-build and payments are staged between around four sums, the last of which is payable on completion, which can be in a year's time.
Alex Wright, director of private client services at HIFX, says individuals need to eliminate risk and not speculate on the sometimes quite volatile currency market: "If you're buying a house in the UK , you won't normally open a spread betting account. Why do it with Spain ?"
People buying larger sums of currency can protect themselves against fluctuations by buying forward contracts from banks or brokers. These contracts allow you to fix the exchange rate today for delivery in the future, subject to a 5 or 10 per cent deposit, known as a margin. If your target currency market moves against you by more than the deposit percentage, the bank or broker may make a margin call, for additional security.
Wright says the exchange rate that buyers get will depend on the interest rate of the target currency. The exchange rates on forward contracts may be slightly better than instant or "spot" rates if you're buying a higher interest rate currency. If the interest rate on the target currency is low, the forward exchange rate is likely to be slightly worse than the spot rate.
The advantage of forward contracts is that you can buy currency now and pay for it later. You also lock in a rate, giving you certainty over the purchase price of your property. The downsides, however, are two-fold: you're unable to take advantage of future exchange rate moves in your favour; and you lose on the interest you might otherwise have earned on the deposit.
Currencies can be volatile in the short term too. On July 7 last year, the day of the London terrorist bombings, the sterling to euro rate fell from 1.4707 to 1.4509. On a £100,000 purchase that's a difference of nearly €2,000.
A handy tool buyers can use for buying forward, or indeed buying spot, are market orders known as "limit" and "stop loss" orders. These allow punters to set top and bottom rates they wish to do business at. Automatic purchase is triggered when the exchange rate reaches what you believe to be at or nearing a high point , or when it drops to a designated level. (If a currency slips below a certain support level, it may have a lot further to fall.) Brokers can help customers understand where to set these buy points.
Brokers tend to offer better exchange rates for larger sums than the big four banks, and it's worth shopping around. If you do go via a high street bank ask for the wholesale exchange rate rather than the less competitive tourist one. Also, try and get the bank's booking rate rather than the indicative rate. The former is the price you'll end up paying.
But you are likely to get a much better deal via a specialist currency broker, and some brokers do not charge customers transfer fees for sending money abroad. By contrast, the big four banks charge £18-£35.
Many European banks and some in the US also charge receiving fees. Currencies Direct and Moneycorp have a list of Spanish banks where there's no fee. HIFX promises no receiving fee at any Spanish bank.
However, before you send a small fortune to some obscure broker remember that currency broking isn't regulated by the Financial Services Authority. So buyer beware."
Source: Financial Times
