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Overseas buyers: Fix your exchange rate when buying UK property

For international investors looking to purchase property in the UK, a fluctuating exchange rate must be taken into account, but you can mitigate the risks. 

One of the reasons that many investors see the UK as a “safe haven” for investment is down to its heavily regulated markets, which can reduce the risks compared with other parts of the world, as it creates a more stable investment environment.

Still, overseas investors must factor in fluctuating exchange rates when buying property in the UK, as it can make a big difference to the overall investment success. For those investing from dollar-pegged currencies in recent years, the weakened pound has essentially led to some attractive discounts for foreign buyers.

The most recent inflation announcements from the US and the UK have been positive, with the UK seeing a steep fall in its CPI from 6.7% in September to 4.6% in October. Over a similar time period, the pound-to-dollar exchange rate has fluctuated, but overall has risen to today’s level [16/11/2023] of around £1.24 to the dollar.

For non-resident buyers looking to invest in UK property at the moment, a strengthening pound can mean you get less for your money, but there are steps buyers can take to create more certainty around their costs.

Fixing the exchange rate

Currencies can fluctuate for a variety of reasons, whether than be inflation levels or investor speculation. In the current, relatively uncertain financial climate, this could lead to even greater turbulence in the exchange rate space.

To protect returns in such an environment, investors can hedge against changes by fixing their exchange rate for a set amount of time through a currency service provider, which can make currency transfers for events such as a property purchase. Some providers can fix the rate for up to two years, for example.

The advantage of this is that if your exchange rate moves in an adverse direction, your funds will be immune to this change. However, on the down side, if the exchange rate were to improve from the perspective of your purchase, you would not benefit from this movement.

Investors can even lock into a particular exchange rate ahead of time, for a specific future purchase, allowing them to benefit from a good exchange rate ratio even if they won’t be converting their currency straight away.

The stakes are high

With property purchases generally involving the transfer of extremely large sums of money, there is a lot at stake with even a small exchange rate fluctuation for the investor. Many therefore opt to use the services of a foreign exchange specialist who has expertise in dealing with property purchase in the UK.

The UK property market has continued to show a high level of resilience throughout the recent market turbulence, including the surge in the cost of living and interest rates, which have led to a slowdown in the previously accelerating rate of house price growth.

At the same time, the rental market has gone from strength to strength, with landlords in many parts of the country continuing to report strong yields amid exceptionally high tenant demand. The market is changing, though, with more appetite from higher end rental offerings, and renewed interest in city centre living.

One recent survey from revealed that around 40% of investors buying abroad said that a fluctuating exchange rate would “pose a significant problem” due to its effect on the overall cost of a purchase.

Christopher Nye, property expert at Your Overseas Home, pointed out that currencies fluctuate every day, and this has the propensity to greatly affect an overseas property purchase.

“With a property purchase overseas costing hundreds of thousands of euros or dollars, and there being months between agreeing to buy and actually paying up, a falling pound could mean having to find tens of thousands of pounds extra at the last minute,” he said.

“Property buyers are right to be worried, especially with elections in the UK and the US next year potentially affecting exchange rates. Fortunately, you can avoid this risk by fixing your exchange rate with a foreign exchange specialist that specialises in property buying.

“It’s all about being smart, knowing the risks of buying abroad in advance and planning for them.”

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