Efficient currency transfers and protecting your budget are crucial for a successful overseas property purchase. Holiday home, permanent residence or pure investment – for most of us the need to exchange funds and send them overseas is inescapable.
It’s not only about the act of buying your property. Once you own it and eventually maybe sell, you’ll need to send money back and forth to foreign bank accounts. Sounds simple, but how prepared are you to budget in two currencies, protect your funds from fluctuating exchange rates and navigate foreign banking systems. Needless to say, careful planning and using a currency specialist are no-brainers.
Here are the key moments when you’re likely to make cross-border currency payments and some pointers on how to safeguard your money. Remember, however small in value, a transfer is still an opportunity to lose or save money.
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Currency transfers for buying a resale home abroad
Typically, resale transactions are broken down into three stages, each one usually requiring a payment. These are making an offer/reserving a property, signing the purchase contract (similar to exchange in the UK) and signing the deeds at completion. The time between stages varies by country (and indeed regionally).
Reserving your property
Often an agent will ask you to sign a reservation contract and pay a deposit when your offer is accepted. Typically, the deposit ranges between €2,500 and €8,000, depending on property and location. Don’t sign or pay anything until your lawyer has checked the contract. You may have an offer agreed without the need for a reservation contract or deposit.
The sales contract
The next formal step is usually the signing of the purchase contract (similar to exchange in the UK). Legally binding, this occurs typically around 28 days after the reservation or formal offer being accepted. On signing, a larger deposit – 10% is standard – is paid by the buyer. Funds should be sent to your lawyer’s escrow account.
Completion and signing of deeds
The final step in any purchase process is the signing of the deeds and completion. In many countries this must be ratified by a notary at their office. This is when buyers transfer the balance of the purchase price (taking into account any deposits), plus any additional fees and taxes. Your lawyer should ensure funds have been transferred and are available in good time for completion day.
Currency transfer tips #1
Ideally, open an account with your currency specialist and pre-fund it before flying out to view property. This way you are ready to arrange a transfer to cover a reservation deposit at short notice. Funds are usually sent either to the agent’s or your lawyer’s escrow account.
The moment you have an offer accepted is pivotal and a green light to take action. You now know how much you are committed to paying in the local currency and have a timeline for completion.
If your funds are still in Sterling, waste no time speaking to your currency specialist and planning the most effective way to transfer the required amount of currency. Unless you put measures in place, the final cost to complete remains a moving target dependent on exchange rate movement. Which is why many buyers like the comfort of agreeing a forward contract with their currency specialist.
Some buyers prefer not to use a forward contract or just for a proportion of the purchase value. In which case, you can use spot contracts, meaning your transfer will be based on the live exchange rate on the day you book it. There is always flexibility to customise a payment plan around your personal preferences.
Currency transfers for buying off-plan
Buying an off-plan property usually means making a series of stage payments with the balance due on completion. After a reservation deposit, expect to pay a 10%-30% deposit at contract signing. Some developers expect nothing else until completion, others will request one or more instalments of 10%-30% at various construction milestones. Either way, the total cost could be stretched out over one, two, even three years.
Currency transfer tips #2
Buying off-plan allows you to spread out the payment of your property. But the exchange rate could swing significantly between signing the purchase contract and your final payment at completion. This could affect the overall cost to you in Sterling. Speak to your currency specialist early about a suitable approach to payments and integrating forward contracts to protect your Sterling budget.
Currency transfers for selling an overseas property
Receiving and repatriating the proceeds of a overseas property sale might not be as simple as you first thought. Always check your options with a solicitor or currency specialist in good time. Typically, funds are sent by bank transfer to your solicitor from the buyer or their solicitor for onward transfer to you. You might be able to have them transferred direct to your currency specialist.
Currency transfer tips #3
When considering options, bear in mind that foreign banks typically charge fees and have caps for receiving large payments. High value transfers can also trigger compliance checks, especially when coming direct from the buyer. You may also be required to make a tax declaration or visit a branch in person to authorise a transfer. In some instances, particularly in Spain, you may be asked to receive funds via a banker’s draft. Again, banks charge hefty fees to deposit these, leaving vendors at risk of being out of pocket.
The consensus is to keep transfers to and from foreign banks to the bare minimum.
Thankfully, currency specialists and solicitors are wise to their fees, limitations and regulatory hurdles and have clever routes for repatriating your sale proceeds safely and cheaply.
Currency transfers for owning a property abroad
Owning abroad brings with it all the usual overheads you’re used to paying back home – and possibly a few extras. Most owners set up direct debits with their foreign bank to cover utility bills, council tax, insurance, community fees, mortgage repayments and any other regular bills. You just need to keep your foreign bank account topped up accordingly.
Owners who do short-term letting may wish to repatriate some of their rental income. Typically, this is done at the end of the season, after agency, maintenance and tax bills have been settled.
Currency transfer tips #4
Discuss the option of arranging a regular payment plan to your foreign bank account with your currency specialist. You can tie this in with a forward contract, fixing the amount of currency sent each month and helping you to budget. Your currency specialist’s on-line facility is a convenient way to do this.
Plan for any large ticket bills you might have on the horizon – an extension, pool repairs or refurb by taking advantage of a spike in the exchange rate. Your currency specialist can set up a limit order or simply contact you when a target rate is achievable.
Your Overseas Home is an affiliate company of UK-based currency specialist Smart Currency Exchange. Fully-authorised by the FCA, Smart Currency Exchange are specialists in supporting overseas property-buyers and owners with a full range of international payment solutions, from the planning stage of a purchase to ownership and the onward sale. Find out more by opening a no-obligation account and getting a free quote today!
