Currency Exchange in Portugal

When buying a property in Portugal in a currency other than the Euro, you should seriously consider the use of a currency exchange provider. Read this page carefully, you could potentially save thousands simply by securing the currency exchange of your transaction.

Buying a property abroad is a significant investment, and for many buyers it will be the only time they will ever have to buy large amounts of foreign currency. By using the services of a currency exchange specialist you could save thousands compared to your traditional bank.

Your local commercial bank is not specialized and therefore cannot be as competitive when it comes to the exchange of currencies. When buying an overseas property, or for any large currency transaction, there is a need to convert your currency into another. This can be one of the most expensive part of the process as many investors fail to secure a good exchange rate. By taking advantage of the services offered by currency exchange specialists, you could save thousands.

Currency exchange specialists can offer an effective way to save money.

In the past, many people were unaware of the impact that fluctuating exchange rates could have on the final cost of their property, and the savings they could make by using a currency specialist rather than their high street bank. There are essentially 4 reasons why you should consider using a currency specialist rather than a bank when transferring large sums of money overseas.

First, you’ll save money by getting access to highly competitive exchange rates. On average, mystery shops in the UK’s national newspapers show that the high street banks are charging up to 4 per cent more to exchange your money. Four per cent may not sound a lot, but this means that if you were changing for example 100,000 GBP into Euros, you would pay around 4,000 GBP more than if you would use a currency specialist.

Second, if you use your bank you’ll be subject to a number of additional bank charges that include commission fees (up to another 2 per cent of the amount you are transferring), transfer charges and finally, depending on where you are sending the money, up to another half a per cent in bank receiving fees. Currency specialists will transfer your money abroad completely free of charge.

Fluctuating currency rates can make a huge difference to the final price you pay for your overseas property. Currency specialists will allow you to lock into favourable exchange rates for up to two years, thus protecting your money from adverse currency movements. The reality is that you would never agree to buy a property in your home country without knowing the final cost. If you agree to buy an overseas property without fixing the exchange rate at the start that’s exactly the gamble you’re taking. Bear in mind that the average off-plan property takes two years to build, and so you can see the risks involved by not fixing the rates at the outset. Good currency specialists will provide you with all the help and advice you need in simple jargon-free language. Make sure you shop around and compare the rates given by your bank with a currency specialist.

What is Currency Exchange Risk?

On average it takes between 6 and 8 weeks to complete a property purchase abroad. Even over just one month, currency exchange rates can change dramatically and have a real impact on the price of a property abroad. For example, if you had agreed to buy a property in Portugal, priced at 200,000 Euros on January 2007 (when the GBP / EUR exchange rate was 1.5299) it would have cost you 130,727.50. Had you neglected to fix the exchange rate at the time, that same property would have cost 137,390.90 by 14 March 2007 (based on a rate of 1.4557), an increase of 6,663.45, or five percent.

Your Currency Exchange Options

Unlike your high street bank, currency exchange specialists can offer a number of options depending upon individual circumstances. Essentially, this currency strategy is semi-dependent upon whether you have access to all or part of the money at the outset (you may be financing part of the purchase with a remortgage of your home, or waiting the proceeds of share sales).

If you have full funds available from the outset you have two choices: one “risk free” and one “high risk”. The “risk free” solution would be to buy all of the euros now, thus fixing the cost at the outset (because you will not only know the price of the property but also the cost of the Euros to pay for it). This is called buying currency for “spot”. You can then deposit the bought currency to earn some interest and send payments to your developer as requested.

Those who say “what about the lower interest I will earn on my Euros compared to my currency?” should look at the recent volatility of for example the Sterling against the Euro. The “high risk” strategy would be to buy the Euros each time that you’re required to send them to the developer. This means that you have no idea what the property is going to cost, which could induce some sleepless nights, especially if you are on a tight budget.

And what happens if you want to play safe but do not have all of the money at the outset? There is a solution that is used daily by international businesses to protect their profit margins: buy one or more “forward contracts”. In essence, a “forward contract” means that you can buy the currency now, and pay for it later (when you need to make the individual stage payments). You will be required to pay a 10 per cent deposit now and the 90 per cent balance upon the maturity of the contract. For example, if you wish to buy 50,000 worth of Euros but do not need to send them for three months, you can agree the exchange rate now, place a 5,000 deposit, and pay the remaining 45,000 balance in three months’ time.

If the exchange rate moves at all in that three-month period, this will not affect you at all, as you have bought currency at the originally agreed rate. You may actually fix a rate on all your currency requirements up to 18 months forward. If you have strong views about future exchange rates, you could wait to buy your currency at some stage between agreeing to purchase the property and the date that currency is required. This applies to either buying and paying for all of the currency (a spot trade), or fixing a rate (a forward contract). But either way, remember that you are exposing yourself to currency risk. When choosing a currency broker, look for the following:

That all client funds are held in segregated client trust accounts. This means that the clients’ funds are held separately from company funds, protecting it from creditors.

The company should have professional indemnity insurance protecting customers from staff fraud.

More Currency Exchange Transactions

Once you’ve bought your overseas property or moved to a new life abroad, you will still need to make regular currency transfers for a wide variety of reasons, such as:

Foreign mortgage payments
Pensions transfer
The repatriation of rental income
General maintenance / living expenses

However, buying currency on a regular basis is time consuming, and currency fluctuations can make budgeting impossible. Also, the international transfer fees and commission charged by the banks can soon add up to a tidy sum.

Unlike your bank, currency specialists will allow you to automatic regular payments via direct debit and fix the exchange rates for up to two years ahead so you know exactly how much is being transferred every month.

Unlike your high street bank, with currency specialists you won’t pay overseas bank receiving charges when you send funds abroad. Depending on the amounts you’re sending, you could save thousands of euros a year on bank charges alone.

Disclaimer
The above information is provided as guidance only and does not form part of any contract. You must seek professional assistance before making any buying decision. Currency equivalents are indicative only and should be checked with your bank. All information is subject to alteration without prior notice.