How do exchange rates affect my purchase price?
It might be surprising, but many buyers of overseas property don’t think about exchange rates until quite late in the purchase process. In fact, fluctuations in rate over the buying period can make a huge difference, and if you ignore them, it can be an expensive surprise.
Politics and economics are usually the two big driving factors. Over recent years, with political turmoil around Brexit and its implementation, followed by the pandemic, we have seen rates for buying Euros fluctuate enormously. The graph below shows the cost of €150,000 for a typical property purchase, from Theresa May’s downfall up to the present day.
The cost of the same amount of Euros fluctuated by over £15,000 during this time. The notable events were both political (Brexit-related) and economic (the Liz Truss Government’s Budget, the pandemic, and soaring inflation).
Of course, nobody can predict what will happen next in the world, but the figures show how important it can be to have a reliable currency company on hand to guide you through the purchase process. Without turning to a crystal ball, you can at least make an educated decision as to when to buy your currency. And if you are waiting for funds from a UK property sale to fund your overseas purchase, you can still fix an exchange rate beforehand, using a “forward contract” from a reputable specialist such as A Place in the Sun Currency.
There are other strategies you might consider, such as breaking a large purchase amount in to smaller tranches, to average out your rate over time and avoid having to buy the full amount of currency you need at what might turn out to be the worst possible time.
A Place in the Sun Currency can offer a helping hand, as the only currency company dedicated solely to individuals buying, selling or maintaining overseas properties. With an account manager on hand, and an FCA and Bank of Spain-regulated service, the team are dedicated to helping make your money go further.
What will happen to exchange rates next?
As we mention above, you should be wary of anyone who says they can predict rates – if they could, they would be too busy on their superyacht to tell you about it! But the likely themes for 2024 seem to be interest rate movements and, sadly, international conflict.
Interest rates are important because a higher interest rate in an economy usually creates demand for investors, which in turn pushes the value of a currency up. At the moment, there is talk of interest rate cuts in the UK, Europe and USA this year, as inflation starts to come down. But who will blink first? If the European Central Bank, or US Federal Reserve, move interest rates back down before we see the same in the UK, then you could expect to see those currencies weaken, which would give better rates for buying Euros or US Dollars.
But, by contrast, should the UK cut interest rates earlier, we could see a weaker Pound, with exchange rates falling.
Key to this race will be inflation – so somewhat oddly, lower inflation, while good for our pockets, could also spell bad news for sterling – because it makes interest rate cuts more likely (and don’t forget it’s an election year, and the public like lower interest rates!).
Should international conflicts escalate we could also see involved countries’ currencies take a hit over the uncertainty. That could apply to the Pound should the UK find itself intervening more in the Middle East. We all hope for peaceful resolutions there and in Ukraine of course.
What’s the best way to buy my currency for a property purchase?
Currency exchange is usually a necessary, if daunting, part of the process when buying overseas - that’s why A Place in the Sun Currency is on hand to help. As well as guiding you through the markets, and the process of transferring funds efficiently, the exchange rate you can achieve is also likely to be significantly better than a high street bank will offer. So there’s a further saving to look forward to, as well as the peace of mind of dealing with experts when it comes to getting your money to the right place, at the right time, to make your purchase process as stress-free as possible.