Sunseekers Should Fix Exchange Rates

With the uncertainties surrounding the domestic property market, many canny Scots are looking to invest in property abroad. However, experts are warning those chasing the dream of a second home overseas to plan ahead or run the risk of losing as much as £30,000 over the course of a 25-year mortgage as a result of exchange rate fluctuations.

To avoid the extra costs, Travelex Personal Transfers is advising all overseas buyers to consider fixing their exchange rates for up to two-years in a process known as “forward contracts”. Paying for a foreign mortgage in sterling can lead to wide variations in outgoings as the exchange rate fluctuates from month to month, depending on the state of the market.

Travelex Personal Transfers can also offer a personal broking service that can provide much more competitive rates than the “tourist deals” offered by many foreign exchange bureaux and banks.

As a recent example, a dream Spanish villa on the market for €250,000 in December 2007, with the Pound/Euro exchange rate at 1.4037, cost an average of £178,100. However, in April 2008 the British Pound fell yet again against the Euro of 1.2655, resulting in the cost of the villa rising to £197,550 an increase of £19,450 in four months.

Adding on the costs of banks fees and commission can push the extra charges to as high as £30,000 over a 25-year period (see illustration provided below).

Debbie Brown, Travelex’s Head of Marketing said: “Buying a foreign property is fraught with difficulties. Not only can the extra red tape, language difficulties and foreign legal system weigh things down, but over the course of a 25 year mortgage, bank fees, commission and changes to exchange rates can add enormously to the amount people pay for a property. We would urge anyone considering buying a property abroad to think carefully about the total cost – not just the list price.”

Some key financial considerations when purchasing a property abroad;
· Fees – agents, surveyors and conveyancers
· Local legislation and legals
· Taxation
· How long will it take between completion and exchange?
· Are you buying outright or with a mortgage?
· If buying with a mortgage – what is the life of the loan?
· What fees / commissions are charged by your FX provider?
The hidden costs of an overseas property
The study by Travelex Personal Transfers shows the average foreign property can cost buyers an additional £25,000 on top of the original list price. Fluctuating currency rates could add to the price of a property between the initial exchange and completion, while additional bank charges and commissions can, over the course of a standard 25 year mortgage, add an extra £13,000 to the total cost of the purchase – banks can charge up to £30 and take two percent commission on each international mortgage payment.

For more information on Travelex Personal Transfers visit the website www.travelex.co.uk/personaltransfers. Alternatively call Travelex on 0870 010 0095.