"If you have clients for whom exchange rates could be an issue, it’s well worth knowing how you can help them manage this important aspect of their financial transactions."
In fact, the weaker pound favours investors from many parts of the world for whom property, particularly in London, is viewed as a safe investment. For foreign buyers, exchange rates can be more a more significant cost than stamp duty, legal fees or estate agency charges and if exchange rates are working in your client’s favour, they can make an enormous difference to their final house-buying bill.
For example, moving £1m to the UK for a property investment on the 23rd March 2017 would have cost $250,000 less than on the 22nd June 2016, and $450,000 less than 1st July 2014. That’s a significant difference and one which means that keeping an eye on foreign exchange rates is every bit as important as keeping an eye on property prices.
Exchange rates not only affect foreign investors, but also Brits working abroad and even Brits living in the UK who have salaries and assets held in a foreign currency. Many international companies may well pay staff who are based in the UK in pounds sterling, but may pay bonuses in dollars, if they happen to be a employed by US company for example.
Managing foreign exchange is therefore a cost of buying property that will not affect all, but for the minority of buyers where it does come into play, it can represent an extremely significant cost.
So how should property investors go about managing their foreign exchange business? The best solution for sizeable transactions (e.g. more than £50,000 per year) is to use the services of a specialist foreign exchange dealer. Foreign exchange, also referred to as ‘Forex’ or ‘FX’, is one of the most traded markets in the world, with an average turnover in excess of US$5.3 trillion per day. Much of the trading is done on a speculative basis, with individuals and institutions looking to generate profits from currency movements. Forex markets are open 24 hours a day, 7 days a week and it’s therefore important to have experts who understand not only the workings of the market but also the specific requirements of your clients, working on their behalf.
Here at Investec Private Banking, for example, we have a specialist FX team who are used to dealing with financial advisers and who can provide a quick and efficient service for clients. Within 24 hours a client can have a currency access bank account and a personal dealer in place and can start transferring sterling into their chosen currency and back again.
Importantly, our FX team has direct access to the trading floor, meaning they can quote live off market and get the most competitive rates. They also provide a weekly market commentary and a rate watch service, which enables clients to place a call order for a particular price. There are no transfer fees or hidden charges; everything is included in the rate given, so it’s a transparent and straightforward service.
The requirement for FX services are not restricted to property transactions. Clients may want to move all sorts of assets from one currency into another including bonus payments and pension funds. Clients may also want to agree exchange rates now for transactions that will take place up to two years ahead, which can be organised on their behalf.
So why should a mortgage broker be concerned about a client’s FX dealings? Isn’t the easy option simply to advise them to speak to their bank? It may be, but it may also not be doing them any favours. FX could be the biggest single cost associated with a mortgage transaction and it’s therefore worth getting the very best support. FX is also a service from which brokers can earn shared revenue income themselves; there is a fee paid to the introducing broker on all completed FX business.
If you have clients for whom exchange rates could be an issue, it’s well worth knowing how you can help them manage this important aspect of their financial transactions.
