The cost of currency conversion
Peter Izard is business development manager at Investec Private Banking
Can you imagine being told that the cost of buying your new home had suddenly risen by $40,000 over the past few weeks?
I’m not referring to the asking price going up or even the mortgage rate rising. I’m referring to the cost of exchanging money from one currency to another. At time of writing, an American buying a £1 million property in the UK would have seen the total cost of converting his dollars into pounds rise by around $40,0001 in less than 3 weeks.
The debt crisis in Greece has also resulted in the Euro falling in value by 3.3% against GBP over the same period. Anyone converting £1 million worth of Euros into pounds will find that it now costs them around €45,0001 more to do so than it did just a few weeks ago. And anyone living in Singapore, Hong Kong, China and UAE will be facing a similar problem.
Foreign investors are continuing to buy into the British housing market in large numbers, and for these individuals foreign exchange rates are just as significant as stamp duty costs and can be more significant than legal fees and mortgage application fees.
So what can they do about it?
The answer is to seek professional help to minimise their exposure to fluctuations in foreign exchange rates. Here at Investec, for example, we have a specialist FX team that not only offers competitive exchange rates, but also provides clients with information about market movements and rate fluctuations. They can also help clients secure an exchange rate in advance for an upcoming purchase, thereby protecting them from exchange rate volatility. We also offer a specialist service for intermediaries, led by James Glynne-Percy, to allow mortgage brokers to help their clients better manage their ongoing foreign exchange requirements.
Our FX dealers can set-up a currency access account to facilitate funds transfers and are happy to deal directly with an overseas client’s legal team to ensure FX transactions run smoothly. Property investors can talk directly to a personal FX dealer who will monitor the market on their behalf and notify them if, for example, a target exchange rate becomes achievable for them. And clients can act quickly when the time comes because they have direct access to the trading floor.
The cost of converting money from one currency to another is not an issue that’s suddenly going to go away. Foreign exchange rates are a consideration for any overseas investors buying property in the UK and, in the same way they seek professional legal advice about their property transaction, so too should they seek professional assistance with their foreign exchange dealings.