While huge amounts of information are available on overseas property prices, rental yields, and foreign legal systems, rather less thought appears to be given to currency issues. Yet choosing the right currency broker can make a substantial difference to what the buyer is actually paying in sterling terms.
High Street banks are many buyers’ first port of call, but they tend to offer a poor service to buyers. Currency transactions aren’t their bread and butter, when you speak to your bank you’re probably not speaking to a currency specialist who can take you through all the options, when you speak to a broker, you know you’re talking to an expert.
The timeframe for going through the property process is quite long, there’s quite a difference between exchange rates when you exchange and when you complete, so forward contracts are useful.
Apart from helping clients get a better rate, what currency brokers are about is market expertise. For instance, stops and limit orders can be used to minimise clients’ risk, or to wait until a particular rate can be achieved. That can make a big difference compared to simply buying at spot rates.
Banks are also frequently criticized for the time they take to handle currency transactions. In a property purchase where the date of completion is fixed, and where clients are quite likely not to be in the UK at the end of the process, lack of timeliness can even derail the entire deal. Even when the UK bank has got its act together, the receiving bank abroad can take further time to handle the payment, (and importantly, charge for receipt of the funds) .
If this sounds like bank-bashing, it’s not intended that way. Banks and currency brokers have completely different business models. Currency brokers go for a high volume of currency transactions and low margins. Banks don’t have the volume, so they have to have high margins. They will have multiple charges such as a handling fee, receiving fee, and so on. A good currency broker will hand-hold throughout the process. That means, for instance, that the broker will report the funds transfer as soon as it happens, and will also ensure the funds have arrived in the recipient bank.
While obviously the initial purchase of a property (and its eventual sale) are major foreign exchange transactions, most buyers of overseas property also have a requirement for smaller currency transfers over time, whether that is sending UK pensions or mortgage payments abroad, or bringing rental income back to the UK. Most brokers will handle regular payments, even though the ticket size is small compared to our usual transaction size. Besides, clients who want the security of knowing exactly how much they will have to pay each month can fix the exchange rate for up to two years at a time. That helps them budget, since the monthly payment won’t vary every month depending on currency fluctuations.
Of course the rate clients are getting will be better than the rate they’d get from a high street bank. We know that many of our clients can save between 2.5 and 4.5 % against booking currency from the bank. If clients are “unsavvy” and pay tourist rates, the variation could be even higher, 8 or 9 %. Add in the benefit of timing, for instance where rates are fixed ahead, and clients could end up saving between 10 and 12 % on some deals, which on a €400,000 house is a very considerable amount. The difference can be the price of a swimming pool.
What’s in it for the estate agent? For a start, the agent is providing a one stop shop to the client, covering financial aspects of the transaction. But equally, the agent benefits from the fact that currency brokers are used to assisting with property transactions and understand what is involved in the process and what information both buyer and agent need. With a good broker, you don’t miss completion dates because the currency transfer has gone wrong. With a good broker you always know what’s happening, he says. You never hear back from the bank or the notary, and from my point of view it’s important that a quick call to the broker will get me proof of payment, making everything ready for the completion date.
Adam Bobroff of our preferred partner Foremost Currency confirms that helping the agent is a priority for him. “We have to be careful and not let out any client information without authority of course,” he says, “but subject to that, we will liaise with agents, we send confirmation as well as the funds to the notaire, and we will keep everyone involved in the transaction posted on the current situation.”
Over the years we have made our clients’ transactions simpler, and created customer loyalty, plus of course getting a better deal for our clients. It is a competitive market, with a huge number of “new” smaller brokers as well as a number of larger companies. Not all survive! So finding the right broker is tricky.
We tried a number of brokers back in 2000 / 2001 before settling with Foremost Currency Group. For us, it is all about service. You need to know that if you pick up the phone, there is someone there who knows about you and us. I don’t work with ten different brokers, I work with one.
Peter Elias (Owner Allez-Français)