Regular readers will know that we often bang the drum for forward contracts here at Smart Currency. There’s a good reason why they are our most popular service for overseas property buyers; a great way to protect your hard-earned money from exchange rate fluctuations.
If you’re buying a property overseas, the last thing you want is to see your budget eroded by a set of unpredictable variables. In this article, we’ll show you how a forward contract can help you to maintain control of your finances, whatever you’re up against.
What is a forward contract?
A forward contract is a legal agreement to buy a certain amount of currency using today’s rate up to an agreed date in the future. So if you have just committed to buying a property overseas in euros, a forward contract will provide the peace of mind of knowing the exact rate you’ll be paying it at.
With a forward contract, you can take control of your international payments by protecting an exchange rate from adverse currency fluctuations, common in times of economic uncertainty.
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How much money could I save?
Let’s look at a typical example. Jason and Kylie from the UK decide to buy a villa on the Costa Blanca with a budget of €300,000. After a few months of searching, they find their ideal home, agree a price and pay a deposit to sign the contract. They are now legally committed to paying €300,000 in two months time, or losing their deposit. At today’s exchange rate it costs £250,000.
Jason and Kylie now have a choice. Just wait and see what happens in two months with the exchange rate, or fix it with a forward contract? They decide to fix their rate with a forward contract and know they need to find £250,000 to complete, but no more.
Fast forward two months and they are in the notary’s office in Alicante about to transfer £250,000 to pay the €300,000. They have the money and are ready to complete. In the meantime, has the GBP/EUR exchange rate moved in their favour or against? To be honest, they don’t really care as their rate is fixed. But if the pound had dropped by 5% they would have had to find roughly another £6,000. If they couldn’t do so and could not complete, the purchase would fail.
Of course, the rate could have moved in their favour and saved money, but that is a gamble that few buyers, in our experience, wish to take.
The shocks of Brexit, Covid-19 and the “mini” budget are all recent examples of wild swings in the value of the pound. Had you bought a property without a forward contract at those times, you would have had to reach much further into your wallet than may have been comfortable.
Why book a forward contract with us?
Fluctuations to currency markets are normal but can give savers a nasty shock when it comes time to transfer money. Smart Currency’s forward contract can help you avoid any uncertainty. By guaranteeing a specified rate, you can rest easy in the knowledge that any adverse scenario will have zero impact on the amount you pay.
Our team are always happy to assist you, whatever your individual needs. Whether you need to make regular payments or have a lump sum to send on a specific date, our experienced team are always happy to help.
How do I start the process?
If you’d like to protect your money with a forward contract or are just curious to know more, give your trader a call or if you’re new to Smart Currency, simply enquire here. You can also request a callback if you’d feel more comfortable talking to one of our traders.
There’s no obligation to make a trade, or even to add money into your account right away. Once you’re further along with your property buying journey, we’ll have the account ready and waiting for you, as well as a dedicated trader who’ll be on hand to offer any guidance needed.
To learn more about forward contracts, as well as the many currency strategies we offer, a good place to start is by downloading The Property Buyer’s Guide to Currency. Or if you’d like to speak to a member of our team, don’t hesitate to give us a call on 0808 163 0102.