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Expat Investor : July August 2007
The World's best Expat newspaper, the INTERNATIONAL EXPRESS, is now available to you online as a digital edition --- this mean you will be first to get all the news, crosswords and puzzles, sports and business news, as well as your favourite columnists. Visit our website now at www.theinternationalexpress.com to view a sample copy! Each online edition is an exact digital replica of the original print copy and fully text searchable across all issues. This publication uses Realview's groundbreaking Instant Viewing technology to display the pages exactly as they are printed. Read the International Express online, anywhere in the world and easily search through your archived back issues PROPERTY INVESTMENT July/August 2007 EXPAT INVESTOR 21 In relation to the foreign exchange market, finding the right overseas mortgage is never an easy task. In the UK, it is virtually impossible to find a bank that is willing to lend to potential overseas buyers because UK banks are unable to repossess the money lent. As a result, there are two different sorts of mortgages that buyers can take out to purchase an overseas property. These vary according to where and what you are mortgaging against. The first kind of mortgage is a foreign currency mortgage. This means that your security is raised overseas via a foreign lender or financial service provider. The second option is a multi-currency mortgage, which means your security is UK- based and you are working with a UK lender, that is, you remortgage your UK home to pay for your overseas purchase. It is important that buyers are aware that remortgaging overseas is extremely uncommon. In the few cases that it does happen, mortgage rates would havetobelessthan2%forittobe considered at all worthwhile. It is important to check with your bank how you will get your funds to your provider. For instance, a common problem is the limited amounts that can be sent via internet banking. Another spanner in the works can occur when a deal has been agreed with your provider and you phone your bank to arrange a transfer via CHAPS (the fastest method) only to be told you have to be there in person for it to be authorised -- quite difficult when you live abroad. Needless to say, for a smooth transaction to occur, the sooner your provider has the settlement amount, the fewer the delays which could affect your property purchase. Spain and some of the prospective new euro member countries, such as Bulgaria, often take far longer to process applications due to the pedestrian pace of their banking services. One growing concern amongst property investors is foreign exchange rates. Far too often buyers forget the impact that fluctuating exchange rates can have on the price of a property. On average it takes six to eight weeks to complete a property purchase abroad. Even in a month, currency rates can change dramatically causing a real impact on the purchase price of a property. In December 2005 alone, the value of the euro increased by 3% against the pound. This equates to a loss of 6,000 on a typical 200,000 property in Spain. Imagine the potential impact of currency fluctuations to an individual buying off-plan, where the average purchase time can be as long as 24 months. There are two contributing factors that can cause the foreign exchange markets to move; economic data (interest rates, inflation, manufacturing data, employment figures and so on) and speculation (entities speculating on future market movements). It is important for buyers to do their research -- every country and region should be treated as a unique location. Markets move constantly as a result of hundreds of factors which all have their own influences on the market's appeal. It is vital that your financial services provider works in your best interest and can provide you with answers to key questions. Which countries deliver a risk factor to investors? What are the investing opportunities? Where can you save Expat overseas mortgages Fast Facts 66450 and make money? How erratic is the country's economy? It's estimated that 80% of overseas buyers still go through the high street banks rather than financial specialists. Do explore all your options before going ahead with some of the more traditional routes. A recent survey undertaken by The Sunday Times,found that high street banks can charge up to 4% over the best available rates for currency exchange. In addition to providing better exchange rates, a currency specialist will talk you through the various currency strategies available. movement between the date you book the contract and your settlement date. If you have strong views about future exchange rates (that is, you are confident you could make money if you waited a bit longer), you could wait to buy your currency at some stage between agreeing to purchase the property and the date that the currency is required. This applies to either buying all the currency (spot trade) or fixing a rate (forwards). Either way, you are exposing yourself to a currency risk and taking a gamble. Knowing the price of your property delivers reassurance and certitude. After all, would you buy a property in the UK if you didn't know how much the final cost of it would be? To find out more from Baydonhill, enquire through the fast facts number below. A low risk solution for buyers who do not require a mortgage would be to buy all the euros they require straight away, thus fixing their costs at the outset. This way you are guaranteed to know not only the price of the property but also the cost of the euros you are paying for. This is called buying currency on the spot. This method also allows you to deposit the bought currency to earn some interest. Essentially, the best currency strategies fall into two categories dependent on your financial situation. A spot contract would achieve the best rate,however you would need the full amount of the contract settled no later than two working days. Another option is a forward contract. This allows you to book the rate as it is today and have the currency delivered at a later date, provided you can cover a 10% deposit to fix your price. A forward contract will protect you from market Will Collins, senior foreign exchange dealer with Baydonhill, explains all you'll ever need to know about foreign exchange and money transmission planning when securing an overseas mortgage.