Money often costs too much
We’ll just use our bank
Interestingly, one part of the purchasing or selling process which gets left until the end, or sometimes doesn’t even come into play at all, is how to transfer money into euros when buying, or out of euros when selling.Read more
When we speak to clients and ask them if they have thought about this many still say they will use their banks. As much as banks are great for a number of things, transferring currency is not something that we would recommend you use them for as you could end up paying over the odds in fees, charges and receiving poor exchange rates.
By using a currency company you could save up to 4% on a transaction as they typically offer better rates of exchange than high street banks. This may not sound much, but when talking about a €300,000 transfer for a property it’s a saving of up to €12,000, which could be spent better elsewhere, or could go towards paying the property purchase costs. As well as operating with much lower margins, currency exchange companies have access to the live currency markets, if the rate picks up during the day you will get that rate. Banks tend to fix their rate each morning, so you wouldn’t benefit from any increases that happen after that point.
The average bank charges a fee for each transaction they make for you, no matter how much you are transferring. A currency specialist usually only charges a fee on smaller transactions and then no charge once you are transferring larger amounts. A currency specialist can also ensure you do not encounter any bank charges when your money is received in Portugal. Using the wrong type of transfer through your bank could result in “receiving charges” in Portugal of around 0.5% of the amount transferred.
Currency exchange is something that should be considered early on in the process. Exchange rates are the great unknowns when buying property abroad.Read more
The risk of currencies moving is often overlooked in the excitement of buying, despite the fact that the price of your property will be changing minute by minute. As a "live" market, the cost of buying euros in the morning will be different to that in the afternoon. Over the course of days, weeks and months that fluctuation can be dramatic.
During 2017 the British pound would have got buyers anywhere from €1.20 to €1.08. If you had agreed to buy a €200,000 property in June, when the pound was at €1.15 it would have cost just under £174,000 (at the “interbank” rate). If you were completing on it just two months later when the pound had fallen after the General Election, that same property would cost over £185,000 - you would have to find another £11,000. If you couldn’t find it, you might have lost the property and your deposit.
Such variations (known as “volatility”) over the course of the buying process are perfectly normal and can be much worse. So, while it is perfectly natural to want to buy in Portugal when the pound, or whatever currency you have, is looking strong, unless you lock in your currency with a currency company using a Forward Contract for example you are taking a huge gamble.
What are the options?
What many people don’t realise is that there are many options in terms of getting the best out of your money. Currency specialists understand that buyers all have different financial needs and that’s why they offer a number of different services.Read more
This is the simplest type of currency contract and involves agreeing a price that you are happy with before you transfer your selling currency to the currency company’s client account, immediately after which your funds will be transferred to your buying currency - Euros - and to the account of your choice.
Spot contracts are agreed by phone or email, and once you have given instruction to buy the currency at an agreed exchange rate, you will be asked to send the agreed selling currency equivalent within a couple of working days – the rate won’t change in that time, as it has been secured at the time of your order.
This is used to fix and thereby guarantee an exchange rate now, for a transfer in the future – up to two years ahead if needs be.
Commonly used by buyers of overseas property, a Forward contract can be secured with a deposit of 10% of the selling currency followed by the balance of the remaining 90% on or before a specified date in the future. The buying currency - Euros - is then transferred by your currency provider to the account(s) of your choice (directly to your lawyer/notary or to your own currency account if you prefer) at the rate initially agreed.
If you are undecided when to fix your exchange rate but have a best or worst case rate in mind, you can use a Stop loss or Limit Order to automatically buy your currency at a specific rate if that rate becomes available.
For example, if your target or budgeted exchange rate for your property purchase is not currently available eg it’s currently €1.15 to the Pound and you plan to wait until it reaches €1.2, a Limit order will automatically buy for you should the market move in your favour to the rate at which you want to buy. You can set any rate you like, but of course the higher you aim, the less likely the order is to “fill”.
Conversely, if you have a budgeted rate in mind which is below available levels, or a worst case rate, you can set a Stop loss order to automatically buy for you should rates move against you. This protects you from rates falling any further, which might otherwise make your property more expensive than you had planned for.
What’s the process?
We sometimes wonder how buying property abroad was done before the advent of the internet and the same is said for transferring money. Today, with the click of a button your money can be changed into pretty much whatever currency you wish, but how do we reach that point?Read more
Register with your currency specialist which is quick and easy - we can recommend companies for you, or have look online and choose a few to contact, but whichever company you choose to go for using one as opposed to your bank will save you a small fortune. You will be assigned your own personal contact who will be on hand to provide support and guidance throughout the process.
Place your order and send your funds through to their client bank account. This can typically be done through your online and/or telephone banking service, or by visiting your bank in person to make a transfer. For security purposes, cash, cheques or direct debits are not accepted.
Receive a receipt for your payment and provide details for the beneficiary account – for instance your own bank account abroad, third payment lawyer or a notary who is handling your purchase. Your transfer will then be made immediately (subject to bank cut-off times and internal checks) and payment will typically arrive with the beneficiary the same day or next day.
Obtain an electronic proof of transfer to keep for your records, which can be forwarded onto your real estate agent, lawyer or notary. Currency companies guarantee there will be no overseas bank charges for Euro payments, so the exact amount you buy from is the exact amount that will arrive.