Many of our clients know
roughly what the present rate of exchange is on any given date, but it is
apparent that many do not appreciate the very significant impact that the swift
movement in exchange rates has on their French property.
Starting by considering a
UK buyer planning to make a purchase in France – the first thing that most
buyers do is set their budget, and then a timescale, typically 6 or 12 months,
in which to find that dream home.
Someone with a budget of
say £250,000 a year ago would have been aware of an exchange rate of 1.20 to
the £. That would have given them a budget in Euro terms of 300,000. If they
had kept an eye on rates, they would have noticed that in July 2013 the £ had
risen to 1.288, so their purchasing power had increased to 322,000 Euros. Smart clients took advantage (and our
recommendation) to lock into forward contracts to secure these rates moving
forwards. Today, the rate has fallen back significantly, and the £ stands at a
measly 1.15, meaning that their budget has been slashed to 287,500 Euros. The
difference between these 2 figures is a gaping 34,500 € or 12%. Smart
clients will have purchased at least some of their currency requirement, say
£150,000 worth close to when rates were peaking.
Turning to vendors with
property on the market, but making the journey back to the UK once the sale is
concluded. Once again, if we use an
example of someone offering their property to the market in mid-summer for
300,000 €, the exchange rate back to Sterling was around £0.776. So, their
300,000 price tag was worth £232,800. Assuming that these vendors are still for
sale some 6 months later, they are often
reluctant to reduce their asking price, as they have done their sums and calculated
that their house owes them 290,000 Euros (purchase costs + improvement works),
and they know that they are likely to have to accept offers. So they dig their
heels in and await that offer.
Very few use the currency
market to their advantage, and think that had we sold back in July 2012, we would
have received £232,800, but if they did the mathematics today, they would realize
that accepting an offer of 285,000 € would actually yield £247,665. Thus a
price reduction of 15,000 Euros actually translates to a gain of £14,865 (today’s
rate of £0.869). A vendor lucky enough to achieve the full asking price would
see a Sterling return of £260,700.
Clients are often very
focused on negotiating 5 or 10% off an asking price, but not enough understand
the markets to make them work in their favour.
Our traders will enhance the opportunities for a buyer
via a “Market Watch” service. Give
them the parameters of the deal that you want to achieve and they will notify
you if/when the currency market brings the
property within budget.
One contract type is used to help clients that are
working to this type of budget is a limit
order. This allows a client to select an exchange rate they want/need to
achieve to be able to afford the property in question. There are no charges or
deposits required to place a limit and once the currency market reaches the
desired level the system automatically completes the GBP/EUR transfer for the
client.
Exchange rates change
every 2 seconds and 1%
movement in a day is not uncommon in the current
climate. This is where we believe that our strategy of working with a trusted
currency dealer as an integral part of our business works to the advantage of
our clients, both buyers and sellers.
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