Forward Currency Contracts And Rate Alerts - What are they? How can you benefit?
As Sterling continues its rollercoaster ride, with another week of ups and downs, what’s the best way to hedge against currency risk when buying a ski property?
Moving large sums of money between currencies when buying a ski property can be stressful. Economic uncertainties and fluctuating exchange rates mean exposing your cash to the risk of rates moving against you. When you’re buying a ski property, the wrong move can cost £1000s due to the high values. If your budget only just covers costs at the current exchange rate, a shift against you could mean the difference between buying your dream ski home or not.
In early June 2016, £500k bought approx. €650k. Now, £500k would net approx. €594k* – a whopping €56k difference because of currency market fluctuations.
One way to lessen exchange rate uncertainty, or even if the exchange rate is too good to miss, is a forward contract. Like a “buy now pay later” option a forward contract is useful when today's rate is good, but you don’t need to make a payment straight away. A common scenario when buying a ski property. Foreign exchange brokers (who offer a better rate than high street banks), such as FC Exchange, let you lock in your payment, for up to 2 years. This protects your finances from adverse moves in the market, so high value currency purchases come with greater peace of mind.
Property transactions typically take up to 3 months in the French Alps – one of the most popular destinations for ski chalet purchase by Brits – which can be a long time, in currency terms, with the ups and downs of Brexit. If you can take the volatility of the currency market out of the equation, the whole process becomes a lot less stressful, and in many cases much cheaper.
If you have time to wait for your ideal exchange rate, setting up a rate alert can also be invaluable. A rate alert is the best way to keep track of the currency markets so you can move into action once you hit your ideal rate.
For any more information on forward contracts, rate alerts or any other currency related questions, get in touch and we’ll put you in contact with one of our currency partners.
*9 December 2016