The expert
Stephen Hughes is Associate Director at foreign exchange provider Foreign Currency Direct. For further information, visit www.currencies.co.uk
If we sell up now will we get a good rate?
Q. We have put our home in France on the market and plan to move back to the UK. We also have an apartment in Florida that we'd like to sell. As we will be selling in euros and dollars and then converting these to sterling, is now thebest time to sell or do you think there will be a good window of opportunity for some time to come?
Christine Murphy, by email
A. The recession is deepening in the UK, with un-employment increasing and the Bank of England still continuing to cut interest rates. As a result, I think the pound is likely to struggle for the foreseeable future. The silver lining in the pounds very cloudy future is that anyone looking to bring euros back to the UK could not have picked a better time! While rates remain low, those who have sold up abroad will now be able to benefit from the current exchange rates.
Against the US dollar we have seen huge volatility following Obamas recent bail-out package, which has led to the dollar strengthening against the pound. This has resulted in some of the best levels we have seen for those bringing dollars back to the UK. Compared to a year ago, selling $200,000 to buy pounds would now result in an extra 36,000 or so! However, it really depends which governments, along with their central banks, react quicker and more successfully with their decision-making as to how the pound and the greenback prosper over the coming months.
Is there any way around the poor rate on the euro?
Q. We are buying a property with Polaris World, which is not built yet. We have one final instalment to pay. With the euro rate so bad at the moentm, what is the best option?
Robin Blackmore, Chester
A. With only one more payment to make, it would be easy to forget about the importance of the exchange rate you achieve and to start thinking about the fun times you are going to have in your new home, so it is reassuring that you are thinking about it well in advance.
The good news is that in the last couple of weeks we have seen sterling fight back a little against the euro as the problems in the British banking system seem to have come to the fore and economic data from the major economies in the Eurozone shows that the global recession is starting to bite hard. Whether this positive move is here to stay is virtually impossible to say. The important thing for those buying overseas property to remember is that they are not using the foreign exchange market as a vehicle to speculate, but as a means of paying a company overseas.
The best way to protect yourself against market movements is to take out a forward contract (an explanation of which can be found on www.currencies.co.uk). This allows you to secure an exchange rate immediately for delivery up to two years in the future. Most currency brokers offer this type of contract and generally will ask you to put down a small deposit within a couple of days of securing the currency, but the benefit is you will not need to provide the rest of the sterling until you need the euros to be paid (or the final settlement date of your contract, whichever is sooner).
If you do want to take a bit more of a risk then it is worth considering a limit order. These are placed in the market when people are looking for an exchange rate in excess of those that are currently available. They are confirmed to the client using a contract and are in place 24 hours a day, seven days a week, enabling rates to be secured even when UK markets are not open. The limit order will remain in place until the requested rate is achieved or the client asks for it to be removed. More often than not, these are used in conjunction with a stop loss order, which works in exactly the same way as a limit order but is placed at a rate below where the market is currently sitting so that clients know the worst possible rate they will achieve (still within their budget), while allowing them to stretch for the best possible rate.
This article was published in the May 2009 issue of A Place in the Sun magazine. To order a back issue call +44 (0) 20 3207 2920 or to subscribe click here.