The majority of you will be using sterling to fund the purchase of your property in Spain but will have to pay Euros for it.  This means that you are going to have to exchange your money at some stage.  Although this is not a difficult process, you do need to understand it as it will affect how much you can afford and, if done right, can potentially save you thousands.

Exchange Rates

The most important thing to look at is the Exchange Rate.  You have probably exchanged money on many occasions for your holidays at a Bureaux de Change or travel agent and will understand that some offer better deals than others.  With small amounts of money, the difference may equate to a few pounds but with the sort of numbers that you are looking at for a property purchase, this can amount to a significant sum of money.  You should be able to find the exchange rate from Sterling to Euros in your daily paper, however they usually quote the tourist rate.  You will probably find your bank will offer a rate about 2 to 3 points better than this, and a specialist currency broker 2 to 3 points better still.

For example:

Tourist rate of 1.25 Euros to the Pound
Bank rate of 1.28 Euros to the Pound
Currency broker rate of 1.30 Euros to the Pound

In this case, if you were transferring £100,000 the currency broker will give you 5,000 Euros more for your money.

Transfer costs

You may well get hit for £15 here or there for making BACS transfers either to get the funds to the currency broker and/or to move the Euros to a bank account in Spain, but the big one to look out for is the receiving fees of the bank in Spain.  Many Spanish banks will charge a fee for accepting your money and we have heard of instances of this being as much as 1%, however most currency brokers and some UK banks have agreements in place with some or all Spanish banks to waive this fee.  Check with your bank in Spain and/or your UK bank or currency broker.

Whoever you are using to make the transfer, you will first have to be registered with them (to prevent money laundering). If you are using your existing UK bank, then this is already done, however if you are using a currency broker it usually only takes a few minutes..

Most suppliers will offer you a range of different ways to exchange your currency as follows:

Spot contracts

This is the standard method of buying or selling currency for immediate delivery.  Exchange rates fluctuate minute by minute so when you actually come to make the exchange, you will be given a ‘spot rate’ which will be valid for a very short period of time (typically 10-15 minutes) in which you must decide if you want to accept the rate and sign the necessary paperwork.  You will have a little more time to come up with the funds but they normally expect to have them within 24 hours.

Forward contracts

Forward contracts enable you to fix an exchange rate today at which you will buy or sell currency for delivery at a later date (normally up to two years).  They are useful if you are purchasing a property now that will complete at a later date and you are worried that the exchange rate will fall in the interim period - meaning that you will have to come up with more sterling than you had planned.  Normally you will be expected to pay a percentage of the overall transfer now and the exchange rate offered will be slightly lower than the spot rate for immediate transfer.  Forward contracts protect against adverse currency movements and can be used to lock into favorable exchange rates.

Stop loss orders

Stop loss orders enable you to set a minimum level at which you buy or sell your currency.  Your order will be fulfilled automatically if this rate is reached (so you will have to have the funds available), effectively guaranteeing a minimum rate at which your currency will be exchanged.

Limit orders

Limit orders enable you to set a higher target exchange rate at which, if this rate is achieved, you buy or sell your currency.  Again your order will be automatically fulfilled when this rate is reached and you will have to have the funds available.  If you run a limit order in parallel with a stop loss order, the exchange rate at which you trade is guaranteed within a given range, giving you the advantage of predictability