Buying Overseas Property : How to Exchange the Pounds?

Many retired citizens in the UK are traditionally investing in overseas properties. With UK’s property prices soaring into new heights and a relatively low buy-to-let yield in the UK, it makes perfect sense to look into neighbouring countries real estate market, and beyond.

Currently, it may seem like it’s not the optimal time to seek out opportunities abroad; the British Pound is weakening, the UK-EU regulatory future is somewhat murky, and the future of UK’s economy does not seem bright. With that being said, at the end of the day, if you have available funds, you need to invest them somewhere, and the risk is high across the board – in the bonds markets, the stock markets and the domestic property market. It may be the time to pull the trigger albeit of unfavourable circumstances before European property becomes too expensive to afford as well.

If you have conducted your research and have located the right opportunity for an overseas property purchase, you need to get to the technicalities. Should I use a domestic mortgage or mortgage abroad? Where do I find a local solicitor with enough expertise in foreign law? How should the Sales Agreement be structured to enable the flexibility of managing the deal from abroad?

One of the more significant questions is how to exchange your British Pounds into foreign currency, whether Euro, Dollar, Swiss Franc or otherwise, and how to transfer it to the recipient abroad. This fees relating to exchanging and transferring money abroad are often underestimated by buyers and sellers, but in fact, using the wrong bank or payment facility you may end up paying as much as 2-3% of the transfer value. That means up to 9,000 pounds in fees on a £300,000 property!

The reason for that is hidden fees: the exchange rate markups that banks charge without notifying the client. These exchange rates are based on the “real” exchange rate with an embedded markup. The Euro is now at 1.14. Your bank will sell you Euro for 1.162 give or take. That seems like a tiny difference but when you’re talking about overseas property, even tiny fraction adds up to a lot.

One very good way to transfer money abroad is via money transfer companies, commercial entities that simply enable clients to bought foreign currency and transfer it abroad for smaller costs than banks. These companies position themselves as sort of middlemen that transacts the money on your behalf with smaller exchange rates spread.

The main concern most clients would have in this regard is the safety of the procedure. People trust their banks because they adhere to the highest level of regulation, whereas money transfer companies are much smaller entities reporting to a different regulator (the FCA, formerly the FSA). The truth of the matter is that companies with a turnover of 3m pounds a year or more which are listed as Authorised Payment Institution (as opposed to registered payment institution) must separate their client’s funds from their funds, so if they go bust, clients are undamaged and can take out their funds with ease. This should mitigate the concern on this manner.

To summarise, international money transfer providers, also known as money transfer companies, are a cheaper way of transferring money abroad and are particularly good for people transferring large volumes of Pounds, as overseas property investors.

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