Evening Standard, 22 February 2006
By Lorna Bourke
It was not the complications of buying a plot of land in the Dordogne south west France, or even the challenge of building a home on it, that bothered Caroline Jones - it was doing battles with exchange rates. Caroline works in construction insurance, so was not phased by building contracts, and she was able to strike a fixed-price deal with a French builder for a four-bedroom home with a bespoke kitchen and bathroom off plan. Her problem was how to best turn her sterling into euros
"I had been to a French Property Show and a currency broker was offering better exchange rates than my bank," she says. She talked to the firm's representatives and was satisfied that it was a well established business. They explained to me about forward contracts, where you can fix the exchange rate for anything up to 2 years in advance," she says. "But I decided to transfer money as and when needed because I didn't know how long it would take to get planning permission for the house. I was a bit confused by the paperwork to begin with but after that it was very straightforward and I reckon I saved several thousand pounds because of the better exchange rate and because I was charged a lower flat transfer fee than was offered by my bank."
Using specialist foreign-exchange brokers to transfer cash can save buyers between two and four percent on the totals amount transferred. On a typical 250,000 purchase price for a holiday home, this could save 10,000 or £6,800. Most of the reputable foreign exchange dealers can offer better exchange rates than the high street banks because they don't have the same overheads and deal only in foreign exchange.
There are several major brokers that deal with the public, including Foreign Currencies Direct (FCD), HiFX, Travelex and Moneycorp. As the table shows, it pays to shop around.
How costs compare
|
|
Rate |
Cost of €100,000 |
|
High Street Banks
|
| HSBC |
1.4119 |
£70,826.55 |
| Natwest |
1.4460 |
£69,156.29 |
| Barclays |
1.4640 |
£68,306.01 |
| LloydsTSB |
1.4059 |
£71,128.81 |
| Nationwide |
1.4486 |
£69,032.17 |
| Bank of Scotland |
1.4452 |
£69,194.58 |
|
|
|
Specialist currency dealers
|
| FCD |
1.4685 |
£68,296.70 |
| Travelex |
1.4630 |
£68,352.70 |
| MoneyCorp |
1.4555 |
£68,720.00 |
| HiFX |
1.4610 |
£68,446.00 |
Forward contracts allow you to fix the rate in advance, which can be really usefully if you are buying a property that is still being built or is being restored, as you may have to transfer money at a later date. If the exchange rate moves against you, it could cost you dear. For example, the euro was as cheap as 53p in 2001 and as expensive as 70p recently.
You agree the exchange rate, pay the broker a deposit of usually 10 or 11 percent and you can draw down funds for transfer up to the agreed amount for the agreed period. Transactions between you and the broker can be carried out on the telephone, fax or by email.
"There are a few foreign currencies we don't trade," says Denise Blackburn of Moneycorp, which has branches in Alicante and Marbella in Spain, Sydney, Australia and Florida. "We charge a flat fee of £15 fro transfers with a minimum transfer of £5,000 for lump sums and £4 for transfers if it is a regular payment. You can fix the exchange rate either for lump sums or regular amounts for up to two years," she says.
Like other firms, such as Foreign Currencies Direct, Moneycorp can usually eliminate any charges levied by the receiving bank. "But if not, at the moment, we refund them," says Blackburn.
HiFX, which has been trading in the UK since 1998, has no fees or charges at all, even for relatively small regular payments. It also makes sure there are no receiving charges by the foreign bank. Like the others, it makes its profit from the rate it can exchange your money.
Some brokers offer Forward Time Option Contracts, which make the money available between two fixed dates. This is particularly useful when, for example, the exact completion date on a property is uncertain.
A clear window of up to three months can be agreed for this type of contract, for example between 1 July and 1 October.
Again, a deposit, usually 10 percent, is required to secure the rate and is due within two working days of the transaction. The funds can be called on in full, or in part, during the life time of the contract and paid for as and when required. Final settlement of any currency will be due in full by the maturity date of the contract.
Most of the brokers offer analysis of currency movements - important id you have a choice when you transfer your funds. HiFX, for example, has been ranked within the top three most accurate foreign exchange forecasters globally by the Reuters Forex Poll, beating many of the world's leading banks including HSBC, Barclays LloydsTSB, Morgan Stanley and Merrill Lynch. No other currency specialist featured on the list.