Take care with currency!

The £/€ exchange rate could have a significant effect on the Sterling cost of your Spanish property transaction, or if you’re a vendor how much money you repatriate to the UK. With the UK’s election and uncertainty over Brexit causing Sterling’s value to fluctuate, it’s never been more important to plan your currency transfers carefully

When it comes to transferring funds between the UK and Spain, a bit of planning can save a whole lot of time, worry and often money for British people buying or selling Spanish property, as well as those living here and making regular cross-border payments.

This is especially important when the exchange rate fluctuates more than normal, an effect caused by economic and political events beyond our control. The second week of December is the perfect example. As analysts predicted a majority for the Conservatives in the UK election, a result that would almost certainly leave a clear path for the implementation of Brexit, the exchange rate swung in favour of Sterling, causing it to hit a two-and-a-half-year high against the euro (£1/€1.19)!

Bear in mind that the exchange rate movement is dictated almost entirely by market sentiment. So, if the election results are not what people are expecting, the rate could swing back the other way, and Sterling could weaken. The truth is nobody can predict what will happen – they can only make forecasts based on key economic indicators and what’s happened before.

So why is all this so important?

If you are British buyer on the verge of purchasing a Spanish property, it is likely your funds are still in your Sterling bank account in the UK. You need to think seriously about how and when you will exchange your Sterling funds into euros and send them to Spain. The first step is to sign up with an FCA-authorised currency transfer firm, who specialises in helping people exchange and transfer funds between the UK and Spain. You will also need a local Spanish bank account, which Sun Lawyers can assist you with.

Now let’s look a little closer. At this moment in time, you’ll have an idea of your budget in euros, according to today’s exchange rate. But have you considered that on the day you have an offer accepted and agree to buy a property – however far in the future that might be, the exchange rate will be different to now?

Thinking further ahead, the exchange rate on the day you (or your lawyer) need to sign the sales contract and pay a 10 per cent deposit will have changed. And most importantly, when the bulk of the balance for your purchase is required, typically between six weeks and two months down the line, the rate will be almost certainly have moved again. These changes in the rate might only be small but they can make a difference to buyers with tight budgets who unexpectedly have to make larger Sterling payments than they budgeted for.

The good news is that there is a way to remove this currency movement exposure from the buying process. Currency transfer firms have a tool that enables clients to secure an exchange rate the moment they find a property – or before if they prefer – which they can use for all future payments to complete the purchase. Called a forward contract and requiring a small deposit, effectively it allows a British buyer to fix the Sterling price of their Spanish purchase on the day they make an offer, taking away any uncertainty about what their Sterling cost might be on completion day. Some buyers prefer to fix the exchange rate for half the value of their purchase and buy the remaining balance of euros when they complete – your currency firm will fit a solution to around your personal requirements.

So, don’t put off thinking about your currency requirements till the last minute, or completion day. A bit of planning now, can save a lot of heartache in the future.