News & Press - Friday, May 29, 2009 10:28 - 0 Comments

Foreign exchange news: A sterling rise on properties abroad

- 34% return on properties bought in Europe in sterling terms in the last two years

- number of transactions exchanging euros for pounds soars

People in the UK who own properties in Europe could realise an average 34% uplift on their initial investment*, according to research by foreign currency transfer experts, World First. The weak pound has proved too tempting for many with homes abroad and they are now cashing in to realise the gains made by currency movements.

Analysis of deals over the last 12 months show a 134% increase in the number of euro to pound transactions.

Although property values in Spain and France have fallen by 3.2% and 3.1% respectively, property prices in the UK have plummeted by 14.7% - nearly five times as much**.

Elisabeth Dobson, Head of Private Clients at World First, said:

“It’s a hard concept to grasp for homeowners in the UK, but in currency terms, those with homes in Europe will have seen the value soar in the last two years.  This is likely to be the main driver behind the surge in euro-pound currency exchanges – many people are keen to cash in on the strong euro before the pound rallies.

“There are a range of options for people looking to sell their property in Europe from guaranteeing a rate to building in a flexible ‘currency option’ so that you can benefit from any favourable currency movements too.”

World First offers private clients the choice to book a forward contract to guarantee a foreign exchange rate for a future date, or set a slightly lower rate that will allow the client to benefit from any currency rally.  It is also the only broker to offer private clients the option of booking in an exchange rate for a future date and in the case of the ‘protection option’ with no obligation to take it up***.

-ends-

Notes to editors

Sources
* This figure was calculated using the following sterling-euro exchange rates:
- 1.5 on 12 Feb 2007
- 1.12 on 15 May 2009
If a person in the UK bought a property in Europe on 12 Feb 2007 for €250,000, it would have cost £166,667.  If the property was sold on 15 May 2009 it would have equated to £223,214 – a return of £56,547.

** The Knight Frank Global House Price Index, March 2009

*** Only available on amounts over £100,000

For additional information, please contact:
Wendy Casterton on 020 7801 1060 or wendy.casterton@worldfirst.com

About World First:
World First is a currency exchange broker, serving both private and corporate clients. Set up in 2004 by directors Jonathan Quin and Nick Robinson, the company is experiencing very fast growth and now employs over 70 people in three offices (London, UK, Sydney, Australia and Hamilton, New Zealand). It has 20,000 clients and transacted over £2 billion in 2008.

Private clients largely use broker services to purchase a property abroad, usually a second home or investment or to emigrate.

Additional information on the options available for World First’s private clients:

Spot contract: The exchange of one currency for another at a specified rate for settlement in two working days. This is ideal if you need to make an immediate payment or transfer.

Forward contract: This guarantees a foreign exchange rate for a future date for any period from three days to one year. This rate is fixed irrespective of currency movements between when the rate is agreed and when the funds are transferred. This type of contract is ideal if you want to fix a rate now but will not be making immediate payment.

Flexible forward contract: Clients can fix the exchange rate for a future date but are able to change the settlement date or make multiple payments on different dates from one lump sum.

Regular transfers: Clients can set up a regular transfer scheme which is ideal if you are paying for an overseas mortgage, working abroad and transferring your salary, paying tuition, university or school fees, living abroad but receiving a UK pension or transferring money abroad to cover running costs for an overseas property.

Foreign exchange hedging strategies: For amounts over £100,000 clients can fix the rate for a date in the future with the flexibility of benefiting from any favourable currency movements.  There are a number of structures, some carry a premium and others are zero cost. We have worked two into examples:

Participating forward: If a client knows they will definitely receive £500,000 on the sale of their UK property and wanted to transfer it into euros, they would pick the lowest rate they were willing to accept and set that as the protection level.  If set at, for example 1.10, it means that whatever happens to the rate, even if it fell to 1.00 or 0.95 the client would be guaranteed no worse than 1.10.  However, if the rate rises, the client would get 50% of any rise over 1.10.  There is no cost to this product, clients simply accept a lower ‘worst case rate’ in return for the ability to benefit if the rate improves.

Protection option: If a client hoped to make £500,000 on the sale of a UK property and wanted to transfer it into euros, they could guarantee a ‘worst case rate’ the lowest they are willing to accept and pay 1.5% premium of the notional amount. In this case the ‘worst case rate’ is 1.06 and the premium £7,500.  This allows the client to take advantage of any rally in the pound but also have the security of not getting lower than the ‘worst case rate’.  For example, if the property was sold within six months and the exchange rate on the day was 1.03, they could exercise the ‘option’ and transact at a rate of 1.06, getting €530,000 euros - €15,000 euros more than if they had not protected their currency requirements with a ‘currency option’. If the rate on the day is higher at say 1.20, the client could transact £500,000 at that rate, and receive €600,000 euros in return (though they would have spent £7,500 to guard against falling rates).

If the client failed to sell the property before the option expired and the rate was higher than the ‘worst case rate’, no money would exchange hands as the option becomes worthless. However, if it was lower, for example at 1.03 the client would be able to exercise the option to ’sell’ £500,000 and ‘buy’ euros at 1.06 (this is a cashless transaction and no money would need to be physically sent), then sell these back at the prevailing spot rate of 1.03. This would net the client a profit of £14,563.11.