The Best Time to Exchange Your Pounds into Euros when Buying Property in Spain

If you are lucky enough to be buying a property in Spain, the questions of when and how to exchange your savings into euros to pay for the property will need some careful consideration. Making a wrong decision in relation to this can end up costing you thousands of extra pounds. 

But don’t worry! Once armed with the information in this article, saving money on your property purchase is as easy as making a phone call!

The Basics of Currency Exchange…

Its widely acknowledged that high street banks do not offer a good exchange rate when sending money to another country in another currency, for example when purchasing a property in Spain.

The poor exchange rates given by banks can mean that by transferring your purchase money to Spain directly from your high street bank the purchase could unnecessarily cost you a whopping €10,000 extra on a property purchase of €200,000. The reason for this is because bank exchange rates are usually up to 5% worse than those offered by specific currency exchange companies. When you are looking at exchanging tens or hundreds of thousands of pounds, this can make a massive difference to the amount actually paid! And that is not the only reasons you should avoid using the banks!

Banks won’t offer you the different currency exchange options (strategies), which are key to making real savings when buying property abroad.

Why do I need to think about a currency exchange “strategy” when exchanging when buying property in Spain?

The property buying process in Spain is different to that of the UK.  When your offer to purchase a property in Spain is accepted by the seller, you will be usually be asked to sign an initial contract and pay a non-refundable deposit of 10%. This contract binds both the seller and the buyer to the purchase. 

Before signing any contracts in Spain or paying over any money at all, we strongly recommended you get independent advice from an English-speaking Spanish Lawyer.

All the lawyers recommended by TBA are registered, regulated and insured. They are also fluent in both Spanish and English and will provide all advice in English. For a recommendation for an independent reputable English-speaking Spanish lawyer contact us on 012444 478911 or at info@totalbuyingabroad.com. 

When your offer is accepted on the Spanish property and the initial contract is signed, you will have legally agreed to a purchase price which is usually specified in euros. Lets say the money you will be using to buy the property is in Pounds Sterling; if there is a weakening of the pound against the euro between the time you agree the purchase price and the time you have to pay the balance of the purchase price (on completion) the house could end up costing a lot more than you thought, perhaps even in excess of your budget. As you have paid a 10% deposit, this will be lost if you have to back out. 

For example:

The Delaney family had their offer accepted for a 2-bed property in Ibiza. The price agreed was €350,000

They paid a 10% deposit of €35,000 for the property in June 2016 and got a  rate of 1.30 euros to £1 so the deposit cost them in pounds £26,923.

This meant the balance of €315,000 (€350,000 less the €35,000 deposit) was due on completion. Which at the exchange rate at the time they paid their deposit would mean the property would cost them £241,307.

It took 2 months to complete the legal work for the purchase in which time the exchange rate fell to 1.19 euros to £1. This meant that they would get fewer euros to their pounds. The balance of €315,000 would now cost them £264,706 instead of £241,307 as they had previously calculated. 

Due to an exchange rate change beyond the Delaney family control the property would now going to cost them a massive £23,399 extra.

Don’t Panic!!

With a little bit of planning and the help of a currency specialist, this situation and the additional costs can be avoided.

A currency specialist can put in place a strategy called a ‘Forward Trade’ (also known as a ‘Fixed Trade’). This simply means that you can secure/fix the exchange rate at which you paid your deposit for the whole of the purchase amount, even if you pay it at a later date. This means you will know exactly what you are due to pay with no nasty surprises.

So what does a Forward trade or Fixed trade mean in currency Exchange terms?

It is a name given to a currency exchange trade, which allows you to secure the exchange rate for up-to 12 months. This allows you to know exactly what your property will cost you on the day of completion. To secure the rate you will usually have to pay a 10% deposit. You can then exchange the rest of the funds when the money is transferred on the day of completion of your property purchase .

How do I exchange pounds to euros using a Forward or fixed Trade?

First step is to get in touch with a recommended Currency Specialist who is authorised by the Finical Conduct Authority (FCA)

They will talk you through the process and register you as a customer.

Once you have found the property and made an offer, call your currency trader. They will be able to arrange the transfer of your pounds sterling in to euros for your deposit. If you are comfortable with the exchange rate at that time, you can then discuss ‘locking in’ the exchange rate as a Forward Trade for when you are ready to complete on your property. Your currency trader will do the rest. It’s that simple. 

If you would like details of a recommended currency specialist who will be able to assist you with all aspect of currency exchange including forward trades, contact Total Buying Abroad on 01244 478911 or email info@totalbuyingabroad.com

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Article published: March 22, 2017