Overseas buyers need to protect against currency volatility

Problems in the American sub prime market have had a knock-on effect on all financial markets worldwide including the biggest of them all, the currency market. Currency brokers HiFX are warning anyone considering buying property aboard or emigrating to act now in order to protect themselves against currency volatility.

Chris Towner, Senior Economist at HiFX comments, “Over the last 72 hours we have seen massive moves in commodity currencies on the back of volatility in the US Dollar and the world’s equity markets. Whilst holiday makers shouldn’t be too worried about the impact the current volatility will have on their holiday money or the price of their Sangria, those planning to move abroad or buy property overseas should seek advice on how best to protect themselves from foreign exchange risk.

“With the currency markets in such a volatile and unpredictable state, anyone planning to buy property abroad needs to be aware that they risk the cost of the property being more than they had budgeted for due to adverse rate movements. People thinking about emigrating overseas should also act now to make the most of current rates.”

In less than two weeks the Sterling / Australian Dollar rate has gone from a low of around 2.31 to its current level of 2.46. As a result of this swing, anyone emigrating would currently receive an extra AUD 30,000 by exchanging £200,000 now in preparation for their new life in Australia.

Similar gains have also occurred against the New Zealand dollar with the latest rate of 2.91, approximately 15% higher than its low point of 2.55 earlier on this year. Again this would mean émigrés would currently receive an additional NZD 72,000 when sending £200,000 to New Zealand.

HiFX, who help over 30,000 people buy and sell currency each year, recommend property buyers protect themselves by locking into current exchange rates by use of forward contracts. In essence, a 'forward contract' means that you can buy the currency now (locking into a favourable rate), and pay for it later. To do this, all clients are required to pay is a 10% deposit upfront and the 90% balance upon the maturity of the contract (up to two years into the future).

“We always remind people planning to buy property overseas that they would never agree to buy a property in the UK if they did not know how much it was going to cost them; if you agree to buy a property abroad without fixing the exchange rate at the outset, that's exactly the gamble you are taking” says Towner.

Towner concludes, “As for equity investors, such significant shifts in the market present reasons to be cautious but also opportunities for anyone with a major foreign exchange need. For people planning to emigrate, acting now and securing their new currency could mean gaining valuable extra cash to help them set up their new lives abroad.”