Money talk

Nick Bull, group head of marketing for moneyCorp, Looks at the state
of the overseas property investment markets

The months following Northern Rock's abrupt fall from grace last summer were an uncomfortable period for Sterling. It just about held its position against the US Dollar but never regained traction. Rising food and petrol prices, a fading UK property market and banks' growing reluctance to lend money all nibbled away at consumer's spending power and confidence. The economic slowdown that followed - and which could still lead to recession - tilted the Bank of England towards lower interest rates and discouraged currency investors.

For a long time it seemed to be only Britain and the US feeling the pinch. The Euro charged ahead to record highs against the Dollar while Sterling languished. Sterling/Euro dropped to its lowest level for 12 years and threatened to fall even further. The Pound was able to cling onto its position around US$2 only because the US economy seemed to be in even worse shape.

In June that picture began to change. It became clearer that the Euro zone was starting to show the same symptoms of industrial production setbacks and flagging consumer demand. For a while investors looked the other way, still choosing to believe that Euroland would pull through.

The European Central Bank aided that belief by raising interest rates when other central banks were talking of cuts. Eventually though, investors could look away no longer. The Euro zone's economy had problems that could not be ignored.

Sharp recovery
At the same time there were signs that the United States might have turned the corner. The States had, after all, led the way into this global slowdown; might it be fair to imagine they would also lead the way out?

Investors rapidly reigned in their enthusiasm for the Euro and became much less anti-Dollar. Many who had ridden the Euro higher decided the time had come to take their profits and run. Four weeks after the Euro's record high on 15 July it had fallen by seven per cent against the Dollar. The strong Euro/weak Dollar theory had gone out of the window and everyone was trying to figure out what to do next.

The Dollar's sharp recovery slashed ten cents from Sterling in a matter of days but, just as the Pound had lagged behind the Euro during its ascent, so it lagged on the way down. Sterling edged higher against the Euro to its best level in four months.

If the Dollar truly has turned the corner we can expect Sterling to lose a lot more ground. Property investors with an eye on Florida should act now to buy their Dollars while stocks last. If the holiday home will be in the Euro area the outlook is less clear-cut. Although there is little prospect of Sterling/Euro returning to the highs of last year a modest recovery is likely.

But things can change quickly in the Forex market. If you have to buy foreign currency, of whatever flavour, you need two things that the high street banks don't offer: competitive exchange rates and helpful, up-to-the-minute advice. Rather than ringing your bank's call centre in Timbuktu, a foreign exchange company such as Moneycorp.

Moneycorp's Top Tips for Buying Abroad

When buying a property abroad you will inevitably need to transfer a Sterling sum of money into a foreign account to pay for your property. Exchange rates change constantly and fluctuations in excess of 10 per cent can occur, even over a short space of time. This means that costs can change significantly, especially for purchases that take time to complete, such as the purchase of property. A specialist currency dealer will normally offer you a better rate of exchange than that of a high street bank. It can also offer a range of services that will help protect you from adverse currency movements
Beware - if you ask your bank to transfer the money you should expect them to charge you for doing so. The local bank may also make a substantial charge for receiving the money. A reputable currency specialist can reduce these charges substantially and should offer to pay any receiving bank charges for you
Use a currency dealer to your advantage. At Moneycorp, we offer a very proactive and personalised service to our clients, using our expertise to monitor exchange rates on their behalf to help achieve the best possible rate of exchange
You can agree to buy your foreign exchange currency for delivery within a period of anything up to two years and fix the exchange rate at the time of the agreement. This is called ‘forward buying' and it will help you secure an exchange rate at an advantageous level, removing the risk of adverse currency movements that could lead to the Sterling value of your overseas property increasing between the time of signing the contract and actual payment
If you need to make regular overseas payments, such as mortgage repayments, you should speak to a currency specialist about setting up a payment plan. This will remove the worry caused by exchange rate fluctuations when making currency payments and the transfer fees will only be at a fraction of the cost charged by your bank
Knowledge is power. Every world currency has its own personality, so it is beneficial to understand the factors that could influence a currency fluctuation during the period that you intend to transfer funds. Your awareness of the currency market, coupled with the expertise of your currency trader, will help you decide the most advantageous time to make a transfer and to help your money go further.

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