Managing currency exchange when buying a property abroad

Managing currency exchange risk when buying a house while living abroad is essential, in this article, we'll address buying a property in the UK but the principles and solutions remain true for any country.

Property in the UK has become far more than just about keeping a roof over your head. With ever-increasing property prices providing a solid growth as well as potentially high yields on buy-to-let properties, investing in UK property is seen as a relatively low risk/high reward prospect for non-UK residents.

That said, buying property while living in the UK can be complex enough with potentially long sales cycles, complexities of multiple links in the chain, tax issues, when you live abroad the added complexity of currency exchange fluctuations is a significant risk that could inhibit the return on your investment.

Since 2008, with an ever increasingly volatile global geo-political environment, it is now not uncommon to see currencies change in value by 15-20% over the course of a few days, or even less. For the UK, the once strong GBP is now exposed to these fluctuations post-Brexit.

With the impact of the UK’s decision to leave the EU leaving £GBP significantly lower than pre-2016 levels, UK property for foreign investors has become cheaper and therefore ultimately more attractive.

We have written this article in association with our currency experts at Moneycorp to help you understand what the risks are and the actions you can take to reduce the impact. If you are thinking about investing in UK property, or have questions about managing your currency exchanges, request an introduction and we will connect you with a specialist to assist you.

Impact on property price when £GBP is devalued significantly

The average UK house price, as of April 2022, was £278,000 according to the ONS while the average length of time for a UK property sale to complete from having an offer accepted can range from 60 days to 180 days. In cash only, that can be reduced, while purchasing off plan can take over a year to complete from making an offer.

As every UK property purchase requires a 10% deposit on exchange and the remaining 90% on completion, if you live abroad, the chances of the currency fluctuating significantly is very high.

At the time of writing this article, GBP has decreased in value by 15% against the dollar which means that for a non-UK resident with money in USD intending the buy an average priced UK property, over the course of six months that property has decreased from $384k to $337k.

In real terms, that has made the UK property in $USD £47k cheaper than it was at the start of 2022.

Realistically, while it is possible that GBP could fall further, it is also likely that it could increase quite significantly. Even a 5% rise in the value of GBP would see the price of the property increase to $354k, a $16k increase on the current price.

Impact on property price when £GBP significantly increases in value

It stands to reason, therefore that if GBP strengthens over a six month period, the impact on the cost of buying a UK property using USD is significant as it will become more expensive to do so.

For example, using the example above, if the exchange rate were to return to January 2022 levels, the cost of the property would increase from $337k to $384k. This would cause a significant problem for anybody who has already exchanged and paid a 10% deposit and suddenly found themselves needing to find an additional $40k to complete the sale – or risk losing the $33k deposit (normally 10% of the agreed sale price).

Mitigating significant currency fluctuations over the course of a UK property purchase

Before 2008, and even before 2016 such significant fluctuations in the value of GBP were extremely rare and the impact for non-UK based property investors was never as pronounced as it is today.

With Covid, a potential recession looming, the impact of Brexit still having an impact on the volatility of GBP, international conflicts and rising trade tensions, the likelihood of major currency fluctuations remains as high as it ever was.

Leaving a property purchase to chance creates a major risk to any investor and while it is possible to win big in such situations, you are equally likely to lose big.

Even the most experienced foreign exchange specialists will have extreme difficulty predicting exactly what is going to happen next, so getting advance or predictions for a 3-6 month period is still not going to mitigate the risk.

Currency exchange specialists will have services through their currency platforms which will enable you to lock in exchange rates for a period of time and allow you to manage the risk yourself.

This means that if you have made an offer on a property, if you lock the exchange rate at that moment, providing completion happens within the agreed timeline, regardless what happens in the foreign exchange markets, you will always be sure that you are not exposed to 10-15% fluctuations over that period. Of course, if the value decreases, you would still be able to take advantage of that, but if the value increases you will be protected against any rise.

Our currency partners, Moneycorp, have created a guide to buying property abroad which you can download directly from their website: Download the Moneycorp Guide to buying a property abroad > 

Get expert, independent advice on buying a property abroad

We recommend that before making any final decisions about buying a UK property when living abroad that you speak to a foreign exchange and currency specialist through our network.

They will provide you with a free initial consultation where they can discuss how foreign exchange fluctuations could impact any property purchase (or sale) and also explain how you can mitigate any risks which you may be exposed to.

Request introduction to currency specialist >