You'd never agree to buy a property in the Ireland without knowing the final cost. If you agree to buy a property abroad without fixing the exchange rate at the start, you are taking a gamble and no one, not even the most astute city commentators can predict future exchange rates.
The issue needs serious planning, especially if you are buying a new development 'off plan' where you are required to make several 'stage payments' during the construction of your property.
Whatever your situation, it is important to identify and minimise the risk of the market moving against you and therefore making the property you are buying more expensive. Remember, as soon as you decide to move overseas, you are exposed to adverse moves in the currency market.
Example:
For illustration purposes, let us assume that you are Irish resident buying a new property in England. The developer will require a deposit in £ straight away, and then further "stage payments" during the construction over the next 18 months, with a final payment upon completion. You will know the price of the property in £ and this should not increase unless you upgrade the specification of the property.
The actual cost in € will be determined by the timing of your currency purchase. Naturally, if € strengthens during construction, the cost will decline but if the £ strengthens then your costs will increase i.e. a stronger £ means your property will be more expensive! (This will also apply to those purchasing a straight 're-sale' property where there is a gap between the offer being accepted and the completion of the sale).
Example of volatility:
Your strategy is semi-dependent upon where your sale currency (Euro) is held and whether you have access to all or part of the money at the outset (you may be financing part of the purchase with a re-mortgage of your Irish home or awaiting the proceeds of share sales etc). If you have full funds available you have two choices: one 'risk free' and one 'high risk'.
Essentially your currency options depend on whether you have access to some or all of the funds you wish to transfer:
I have access to all of the funds – what are my options?
If you have access to all the funds you have two choices:
- one 'risk free'
- and one 'high risk'.
The 'risk free' solution would be to buy all of the currency now, thus fixing the cost at the outset (because you will not only know the price of the villa but also the cost of the Euros to pay for it). This is called buying currency for 'spot'. You can then deposit the bought currency to earn some interest and send payments to the developer as requested.
The 'high risk' strategy would be to buy the £ each time that they are required to send them to the developer. This means that they have no idea what the property is going to cost, which could induce some sleepless nights ahead, especially if they are on a tight budget.
I do not have access to all of the funds – what are my options?
If you do not have access to all of the funds at the outset you can still 'play it safe'. The solution is to buy one or more 'forward contracts'.
In essence, a 'forward contract' means that you can buy the currency now, and pay for it later (when you need to make the individual stage payments). You will be required to pay a 10% deposit now and the 90% balance upon the maturity of the contract. For example, if you wish to buy €50,000 worth of £ but do not need to send them for 3 months, you can agree the exchange rate now, place a €5,000 deposit, and pay the remaining €45,000 balance in 3 months. If the exchange rate moves at all in that 3 month period this will not affect you at all, as you have bought currency at the originally agreed rate. You may actually fix a rate on all your currency requirements up to 18 months forward.
I have strong views about future exchange rates – what are my options?
If you have strong views about future exchange rates, you could wait to buy your currency at some stage between agreeing to purchase the property and the date that currency is required. This applies to either buying (and paying for) all of the currency (a spot trade) or fixing a rate (a forward contract). Either way you are exposing yourself to currency risk.
Alternatively, if you are looking to achieve a specific rate, we can arrange a 'market order'.
This allows you to target a better rate of exchange. We monitor the markets on your behalf and, should the market reach your predetermined exchange rate, your currency is bought or sold automatically. Your order is live 24 hours a day and can be amended or cancelled at any time prior to the transaction-taking place.
Which ever option you decide is right for you please remember:
We always remind people that they would never agree to buy a property in the Ireland if they did not know how much it was going to cost them. If you agree to buy an overseas property without fixing the exchange rate at the outset, that's exactly the gamble you are taking.
