Whether you are buying property abroad for emigration purposes or as an investment, the issue of foreign currency plays a big role over the overall cost. The average cost for a house in Spain in 2015 has been at around the € 222K mark (reference); what if I were to tell you the cost of Foreign Exchange and international transfer between GBP and EUR could make cost as much as € 228K, and at times, even more?
Banks
The usage of banks for the purpose of international wire transfers that involve Foreign Currency is fallacious. Though at these rates banks could offer you a “no-commission” policy, what they actually make money off of, and the reason FX costs so much, is the spreads.
Spreads are simply put the differentials between the interbank exchange rate (of which the bank would buy Foreign Currency for), and the one offered to clients. So if the GBPEUR is 1.4, and the bank offers a rate that appears seemingly “similar” at 1.35, it means that in order to buy that house costing 220K Pounds (which equal to 307K Euro), you would have to pay over 227,500 GBP.
Besides that, with banks you’ll be paying a high fixed fee of an additional 25 Pounds, and you would have no dedicated support. It is going to be a one-time-off relation with someone who will make the currency trade on your behalf, but will not advise on when to make the transfer, or offer you hedging tools.
In further detail:
Timing: a foreign exchange expert will be able to tell you when is the right time to buy and sell currencies, depending on your needs and requirements. If you have flexibility with the asset you’re buying, he could consult you to halt and wait for the rates to drop, for example.
Hedging: it is recommended to use features like forward contracts (locks down current rate for a period of time, in exchange for a fixed upfront payment - you can later on decline the option and not eventually utilize the contract, but you would lose your down payment), in order to mitigate your exposure to foreign exchange rate movements.
Unless you’re a massive client getting superb rates from the bank, and have dedicated personal FX advisor, it is probably best if you seek out for viable alternatives.
Foreign Exchange Specialists
Unlike banks which are ample financial institutions that basically deal with everything to do with your money, else than sub-sectors that have been separated from them by regulation, there are dedicated, commercial, facilities which specialise at the exchange of foreign currency and moving it abroad.
They deal with a variety of clients, from small personal gifts or remittance, through one time off payments for things like cars, through import/export, and of course emigration and overseas property purchase. They actually specialize in that!
When you sign up with one of these companies, you will have to supply documentation to verify who you are and what are your intentions, similarly to a process of opening up a bank account. These companies are generally more geared towards the UK audience, so the process will be a tad quicker and easier for Brits, but still not much of an hassle to people outside the UK.
After your intentions are clear, as well as the amount of money you wish to transfer, you would instantly get a quote (a representative quote which isn’t personal is available on many of these FX companies’ websites). You can receive it through an online platform, if you want to transfer less than $XX,XXX, or by phone speaking to a dedicated dealer if you want to transfer higher amounts.
Generally speaking, these companies don’t charge fees or commission, and their spreads are much tighter than the ones offered by banks. Each quote is individual but it is fairly common that you would save a few thousands of Pounds on a large transfer (like property purchase). You would also get free guidance from the dealer trying to help you save more money by using the different hedging tools offered by the firm, and making the trade at the right time.
After you have a contract in place, you would move money from your personal bank account, domestically, in your local currency, to a safeguard account. They would make the currency exchange and ship it to its destination quicker than banks would.
Security and regulation
What most people are concerned with is the aspect of security and regulation of these financial facilities. People don’t understand the concept of a safeguard account, and are afraid they will be scammed off of their money. That’s a legitimate concern, of course.
This is why it’s important to choose an FX provider with strong reputation, which has been operating for years now, had thousands of clients writing about their positive experiences with them online, show transparent and clear information on their website, and beyond all regulated.
Legal entities like the Financial Conduct Authority in the UK, or FinCEN in the USA, make sure these companies use separate, segregated, bank accounts for their clients. They process all complaints and fine, and even revoke the licensing, if they suspect in a misconduct. They make sure there are enough reserves, and that all reports are filled in correctly.
If you choose one of the leading companies, which processes Billions per annum, and has hundreds of thousands, or even Millions of worldwide clients, the risk you’re taking is extremely small.
A retrospect of information stated above, per international money transfer company, could be found at MoneyTransferComparison.com’s reviews.
Global Reach
While most people would be pleased with the top 10 popular currency pairs for their needs, others need a more specific approach. If John is originally from the US, but is currently residing in China, and he needs to transfer funds from his USD Chinese account to buy investment property in Hong Kong, which company should he approach?
The answer is a company with a global approach, preferably with offices in all 3 countries.
InternationalMoneyTransfer.org solves the issue, and makes it clear which companies take on clients from which countries, and to where are they sending money to. With an online feature that allows you to search through a database of money transfer companies, you can find companies matching your precise criteria. They also build dedicated pages to specific destinations, and even not necessarily the most popular ones, like Jamaica, Ghana, Portugal or Lithuania.
Normally the largest companies will take on clients almost internationally, with the exception of some regions where there are continuous issues with banks, or governments, or lacking the proper infrastructure for an EFT. In these developing countries there are frequent remittances crises, but this doesn’t affect the property purchase abroad market to any degree, as few individuals invest or emigrate into those countries.
Popularity
There’s an-ever increasing rate of people who use commercial companies for Foreign Exchange instead of banks, but that number is still below the 20% mark in currency volumes (and supposedly less than that in terms of client volumes), in the UK, that is.
There are always more companies advertising aggressively like Transferwise funded by Sir Branson and Peter Thiel of Paypal.
Especially in the emigration and business sectors, more and more people realize they should be paying less.
Outside the UK things are a bit tricky. There’s a growing demand in popular in the states, but regulation there is a little stiffer, and less companies are US-facing than UK-facing. There are also specific states in which big international money transfer firms don’t operate in. In Europe there are still too few mainland-Europe-based firms, though some companies like Currencies Direct have already 18 offices worldwide, including several ones in Europe.
Forecast
All financial services will be eventually outsourced from the bank, with the exception of savings accounts and the likes. The world as a rule of thumb is going through an evolution, or even a revolution in terms of technology, and people, as well as companies, become more specialised. Why won’t you use a company focusing on one particular service and becoming truly remarkable in that field?
