Sunday, 3 February 2013

Sunday, 3 February 2013

Smart buyers and sellers understand the currency markets

Many of our clients know roughly what the present rate of exchange is on any given date, but it is apparent that many do not appreciate the very significant impact that the swift movement in exchange rates has on their French property.
Starting by considering a UK buyer planning to make a purchase in France – the first thing that most buyers do is set their budget, and then a timescale, typically 6 or 12 months, in which to find that dream home.
Someone with a budget of say £250,000 a year ago would have been aware of an exchange rate of 1.20 to the £. That would have given them a budget in Euro terms of 300,000. If they had kept an eye on rates, they would have noticed that in July 2013 the £ had risen to 1.288, so their purchasing power had increased to 322,000 Euros.  Smart clients took advantage (and our recommendation) to lock into forward contracts to secure these rates moving forwards. Today, the rate has fallen back significantly, and the £ stands at a measly 1.15, meaning that their budget has been slashed to 287,500 Euros. The difference between these  2  figures is a gaping 34,500 € or 12%. Smart clients will have purchased at least some of their currency requirement, say £150,000 worth close to when rates were peaking.
Turning to vendors with property on the market, but making the journey back to the UK once the sale is concluded.  Once again, if we use an example of someone offering their property to the market in mid-summer for 300,000 €, the exchange rate back to Sterling was around £0.776. So, their 300,000 price tag was worth £232,800. Assuming that these vendors are still for sale some 6 months later,  they are often reluctant to reduce their asking price, as they have done their sums and calculated that their house owes them 290,000 Euros (purchase costs + improvement works), and they know that they are likely to have to accept offers. So they dig their heels in and await that offer.
Very few use the currency market to their advantage, and think that had we sold back in July 2012, we would have received £232,800, but if they did the mathematics today, they would realize that accepting an offer of 285,000 € would actually yield £247,665. Thus a price reduction of 15,000 Euros actually translates to a gain of £14,865 (today’s rate of £0.869). A vendor lucky enough to achieve the full asking price would see a Sterling return of £260,700.
Clients are often very focused on negotiating 5 or 10% off an asking price, but not enough understand the markets to make them work in their favour.
Our traders will enhance the opportunities for a buyer via a “Market Watch” service. Give them the parameters of the deal that you want to achieve and they will notify you if/when the currency market brings the property within budget.
One contract type is used to help clients that are working to this type of budget is a limit order. This allows a client to select an exchange rate they want/need to achieve to be able to afford the property in question. There are no charges or deposits required to place a limit and once the currency market reaches the desired level the system automatically completes the GBP/EUR transfer for the client.
Exchange rates change every 2 seconds and 1% movement in a day is not uncommon in the current climate. This is where we believe that our strategy of working with a trusted currency dealer as an integral part of our business works to the advantage of our clients, both buyers and sellers.
More information via sales@allez-francais.com
See our website www.allez-francais.com
 

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