Buying a holiday home abroad or planning to relocate to the sun represents a major investment and perhaps the realization of a long held dream. It may come after many years of planning and saving, or maybe a life-changing decision to retire to warmer climes.
Of course, choosing the right property and location is of paramount importance. But for many the choice of professionals to help with this often-daunting prospect is a secondary consideration.
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The obvious relationships need to be established with the real estate agents, and then a reputable lawyer, but for those buyers coming from a non-Euro environment, surprisingly few think of talking to a recognized currency specialist early enough in the process. But why is it so important to do just that at the outset?
When planning a move, buyers will look at the exchange rates when establishing their budget. But of course, rates move, and as recent months have shown us such moves can be fairly dramatic, albeit maybe not at first glance. Economic, political and social factors can have a big impact on the amount of hard-earned money required to complete the purchase, often many weeks or months after a deal has been struck.
The impact of timing
To illustrate this, consider a real example. A British buyer agreed to purchase a nice villa on Mallorca in July this year and after some negotiation, offered a round €400,000 which was accepted by the seller. The lawyer was appointed and the contracts were prepared. At the time of the offer, the exchange rate for pounds to euros was 1.44. However, by the time of completion at the end of September, the rate had fallen to 1.345. It maybe doesn’t look very much, but in reality it meant that the buyer had to find an extra €20,000 to fulfill the contract. Imagine how much furniture that could buy!
So what can buyers do to avoid this potential risk? Well, there are a number of things, such as fixing rates when the market is in the right place, but certainly choosing a respected currency broker at the beginning of the process to help develop a currency strategy for the purchase can reduce or remove the risks of such movements in exchange rates.
Reduce your risk
Because exchange rates are driven by market forces, and heavily influenced by events worldwide such as the Greek debt crisis, the decision to uncouple the Swiss franc from the euro earlier this year, the drop in the oil price, and now the Syrian refugee issue, the market is seeing intense volatility. It is virtually impossible to forecast where exchange rates for any currency pair are headed. And this makes it even more important to plan ahead and reduce risks, enabling you to enjoy the excitement of buying your home in the sun with no nasty surprises along the way!
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This article was written in October, 2015.