As Britain recovers from quarantine lockdown, there is clearly a collective interest in meeting delayed plans and making the most of available opportunities. As experts in international payments, we have helped thousands of people fulfill their real estate ambitions and we look forward to sharing some of our experience.
What do the numbers say?
According to a recent studyThere are currently more than half a million Britons who own property in Europe. An abundance of culture, long, hot summers and fast flight times are just some of the factors that make Europe so attractive, even more so when you start investigating how much you can get for your money. June 29 right movement recorded one million searches on its overseas property website, which is a promising sign of improving sentiment in the international property market.
Cities in Spain, France, Italy and Portugal can boast more than 350 hours of sunshine in each of the summer months, while the UK sticks to 200 hours. Flights from Gatwick will take you to Nice in two hours, while Milan is just one hour and forty-five minutes away.
Despite the long run of cheap borrowing rates ignored by the ECB, general opinion supply and demand curve Property prices in popular countries and cities remain low enough to keep prices in check. Of course, there are always some exceptions, and if you’ve seen BBC’s The Night Manager, you’ve probably been in awe of the Malaga fort that housed Hugh Lawrie’s character: that property was purchased in 2011 by Lord Upton for a rumored €35,000. ,000 pounds sterling. .
Do you know about notaries?
The role of a notary may seem somewhat foreign to those who have bought or sold property in the UK. There’s a large amount of information available online in their processes, so I won’t go into too much detail, but one of their strengths is that they can play both sides of the process. They will also take responsibility for the entire project, consolidating all administration in one place.
Currency risk and affordability
This is one of the most complicated parts of the process. The cost of a European property in pounds sterling changes twice a second, making it almost impossible to act with any real certainty. Again, this is a relatively foreign process for most first-time buyers in Europe – imagine trying to buy a property in the UK on a strict budget, but the price fluctuates by 2-5% every week.
Currency volatility will never go away. The market will always have a reason to move, whether it is an immediate threat or a future concern about politics or economic performance. At first glance, sterling faces continued Brexit uncertainty, the threat of negative interest rates from the Bank of England and concerns of lasting damage to various industries. An economic calendar data is released each week that will drive short-term price movements while creating a picture of longer-term economic health.
The following table illustrates the difference in GBPEUR rates over a six month period and how it affects the cost of an example property of €475,000, resulting in a price change of almost £50,000.
|Property in euros
|Cost in pounds sterling
|Savings or increased costs: £49,374
How will Brexit affect overseas property owners and buyers?
As things stand, members of the European Union (EU) can buy property within the EU and live there for as long as they wish. Following the post-Brexit transition period, there is likely to be a change in regulation for potential buyers as the property market will undergo significant changes. Potential changes They include an increase in stamp duty, limited availability of mortgages and higher property taxes for potential non-EU homeowners and buyers. While there has been a lot of uncertainty about buying a home abroad since the EU referendum, the transition period at least means that UK citizens will be able to retain the rights of their EU citizenship during this period despite of no longer being members of the European Union. . This means that you will still be able to apply for residency in any EU country, as long as you do so before the end of the transition period.
After Bexit, living and working in an EU country depends on that country’s rules. Click here for official information for UK citizens wishing to live and work in the EU.
Once you have committed to purchasing property in Europe, you need to consider what your monetary strategy will look like. This largely depends on your risk appetite, but more importantly, your budget. If sterling were to devalue against the euro by “X”, could you still afford to go ahead? If the answer is no, then there are two considerations you might consider:
Buy and hold. If you are purchasing with cash and have not yet been able to set up a local currency account in the country of your choice, then World first You can convert your British Pound and maintain a Euro balance in your segregated client account. This reduces your currency risk and allows you to budget from an existing euro fund, rather than having to recalculate every few days.
Installment purchase. If you are purchasing with cash that is currently not available, then a advance contract could be a good option to bridge the time gap. Originally designed to help businesses purchase foreign currency in advance without consuming cash flow, they have become more common within the international real estate space. A forward contract allows you to purchase a specific amount of euros for a flexible date in the future, allowing you to budget accordingly. The good thing about a advance contract is that you now know exactly how much you will receive when you are ready to make the transfer. It helps you plan ahead and can potentially protect you if rates move against you later. However, it should be noted that a forward contract could also work against you if rates move in your favor after you have secured a rate.
A typical term contract with WorldFirst requires a 10% deposit.
Here is an example:
Mr. and Mrs. James are buying a farm in France. The quoted price is €600,000. They hope to complete in March 2021 and have £300,000 available in the UK from another property sale. Remaining funds will be available 6 weeks after the sale of an investment portfolio. To ensure the protection of the farm’s monetary costs, they forward purchased the entire 600,000 euros at the current exchange rate of 1.1135, but for delivery on September 1. They will deposit 10% of the notional amount in pounds sterling as a deposit and pay the remaining 90% on the settlement date.
We may ask you to top up your initial deposit if the exchange rate moves significantly after you have guaranteed your rate. This is called a margin call. Click here to learn more about margin calls, when it applies and why..
The same strategy can be applied to selling a property. If you agree to sell at price “x” in euros, how much will that be worth in pounds sterling when the sale is made? There is no right or wrong way to approach this process, as everyone will have unique circumstances regarding budgets, financing, and risk appetite.
If you are buying or selling a property and would like to arrange a conversation with one of our account managers to discuss your monetary strategy and the option of term contracts, please get in touch today. Alternatively, you can open an account with WorldFirst by registering here free.