Jobs & Money Detail
Don't lose out with your currency exchange
Although a dream for many, buying a property in New Zealand can turn into a nightmare if vital parts of the buying process are neglected
Roy Welch explains how one of the major causes of stress for overseas homebuyers is overlooking the importance of the currency exchange rate.
We would never dream of buying a house in the UK without knowing how much we were going to finally pay for it so why, when buying in New Zealand, is this exactly what so many property buyers do? Whether buying a home outright or in instalments, the purchase will no doubt involve changing your hard-earned cash into a foreign currency. Unfortunately, no one can predict the currency exchange rate as many economic and political factors constantly affect the strength of the pound.
Currency exchange rates are constantly moving and there is no guarantee that they will be in your favour when you need your money, so it is vital that you protect yourself against these movements. A lack of proper forward planning could potentially cost you thousands of pounds and reduce your spending power abroad. The affect the exchange rate can have on the cost of your property can be seen if you look at what happened to Caroline and James Bradley, who found their dream home in Wellington last year.
The large, luxury three-bedroom property was on the market for NZ$690,000 back in July 2005. Caroline and James fell in love with the house and worked out that at the current exchange rate of 2.6202 it was going to cost them £263,338. At this price not only could they afford their dream home but it also left them with a nice nest egg. However, by the time they came to complete on the property the rate had dropped to NZ$2.4245 and the property ended up costing them £284,594, a difference of over £21,000. This increase meant that the savings they thought they would have all but disappeared.
The couple could have avoided this pitfall by buying and fixing a rate for their currency ahead of time through a forward transaction. This is the 'buy now, pay later' option and is ideal if you still have time to wait before your money is due in New Zealand or if you are waiting for the proceeds from the sale of your UK property. Usually a small deposit will secure you a rate for anywhere up to two years in advance. If Caroline and James had used this option when they first decided on the property they would have had the security of having the currency they needed at a guaranteed cost and knowing exactly how much their new home was going to cost. However, you don't always have time on your side when buying a property and if this is the case then it is most likely that you will use a spot transaction.
This is exactly what Derek and Sharon McCain did when they found their new home in Auckland. Their ideal property was on the market at NZ$490,000 and they found themselves in a position where they needed the majority of the money almost straight away. Because of this they used a spot transaction which is the 'buy now, pay now' option where you get the most competitive rate on the day. It is, however, fair to admit that many of us do not have the time or sufficient knowledge of these options to be in a position to confidently gauge when the foreign currency rates are at their most favourable, and this is where a foreign exchange specialist can help. As an alternative to your bank, currency exchange specialists are able to offer you extremely competitive exchange rates, no commission charges and lower transfer fees. This can mean considerable savings on your transfer when compared to using a bank.
For further information:
Currencies Direct
Register for your FREE emigration starter pack
Subscribe to Emigrate magazine. Read more ...