Buying property abroad is exciting, but currency fluctuations can quickly turn your dream purchase into a financial nightmare. Even small changes in exchange rates can cost you thousands of pounds—sometimes enough to buy a car or fund a luxury holiday.
Here’s the reality: if you’re buying a €500,000 property in Spain and the pound weakens by just 5% between agreeing the price and completion, you’ll pay around £25,000 more. That’s money that could have stayed in your pocket with the right currency strategy.
Don’t worry, though—this isn’t about complex financial wizardry. There are straightforward ways to protect yourself from currency costs that any property buyer can understand and use.
Why Currency Costs Matter More Than You Think
When you buy property abroad, you’re essentially making two purchases: the property itself, and the foreign currency needed to pay for it. Most people focus entirely on the property price and forget that the currency element can swing by thousands of pounds.
Let’s say you agree to buy that Spanish villa for €500,000 when the exchange rate is 1.15 (so £1 = €1.15). You’d need roughly £435,000. But if the pound weakens to 1.10 by completion day, you suddenly need around £455,000—an extra £20,000 out of nowhere.
This isn’t theoretical. Currency markets move daily, and property purchases often take months to complete. The longer your timeline, the more exposed you are to these fluctuations.
Strategy 1: Lock in Your Rate with a Forward Contract
A forward contract is like currency insurance for your property purchase. You agree today on the exchange rate you’ll use for your completion payment, regardless of what happens to currency markets.
- How it works: You call your currency provider and say “I need €500,000 in three months, and I want to fix today’s rate.” They guarantee that rate, protecting you from a weakening pound. Note that Forward Rates are different to Spot Rates due to the interest rate differential between the two currencies involved.
- The benefits: Complete certainty over your property cost, no surprises at completion, and usually no upfront fees.
- The downside: If the pound strengthens, you miss out on the upside. Forward contracts also require a deposit to be paid up-front.
Best for people who value certainty—especially on big purchases.
Strategy 2: Keep Your Options Open with Currency Options
A currency option is like buying the right to use a specific exchange rate—but without the obligation. You pay a small upfront fee, a "premium", for this flexibility.
- How it works: Pay a premium (typically 1–3% of your transaction) for the right to exchange at a specific rate. If rates improve, you use the better market rate. If rates worsen, you use your protected rate.
- Benefits: Downside protection with upside potential.
- The downside: You pay a non-refundable upfront premium whether you use the option or not.
Best for people who want protection but don’t want to miss out if the market moves their way – or for those with uncertainty on delivery.
Strategy 3: Use a Multi-Currency Account
A multi-currency account lets you hold euros (or whatever currency you need) and control when you convert your money.
- How it works: Transfer pounds into the account but keep them as pounds until you see a favourable rate, then convert to euros when the timing suits you.
- Benefits: Convert when rates are good, avoid multiple fees, make payments directly in euros.
- The downside: You need to monitor exchange rates yourself.
Best for those with time to watch currency markets.
Real-World Example: The Johnson Family
The Johnsons agreed to buy a €600,000 house in France at £1 = €1.20 (so £500,000). Closer to completion, the rate dropped to €1.10. Without protection, they’d need £545,000—an extra £45,000.
But they’d taken a forward contract at €1.18 and paid £508,500, saving £36,500 compared to the worst rate.
Practical Tips for Any Strategy
- Start early: Plan before completion day for more options.
- Understand all costs: Check for provider fees and bank spreads upfront.
- Avoid your high street bank: Specialist providers usually offer better value.
- Keep flexibility: You can often fix part and leave some exposure for upside.
- Get professional help: A specialist can explain options jargon-free.
Watch Out for Hidden Costs
- Legal fees in the local country
- Property taxes and stamp duty
- Surveys, valuations, insurance
- Ongoing currency needs for maintenance, utilities, taxes
These often continue after the purchase is done!
Frequently Asked Questions
How far in advance can I fix a rate?
Usually up to 1–2 years for forward contracts.
What if my purchase falls through after booking a forward?
Terms vary, but you may need to complete the exchange or pay a cancellation fee—always check first.
Are options always expensive?
Option premiums are typically 1–3% of your transaction amount.
Should I wait for a better rate?
No one can predict the market. If the rate fits your budget, it’s often safer to secure it.
Can I use more than one strategy?
Yes! Many buyers fix some but leave some exposure for potential upside.
How do I know if I’m getting a fair rate?
Check against market rates online. Specialists are usually within 0.5–2% of the real rate, banks as much as 3–6% away.
Take the Next Step
We help individuals design practical, no-nonsense currency strategies that actually make sense for their international financial needs. No jargon, no over-engineering: just sensible currency management.
Get in touch at info@okumarkets.com or
0203 838 0250 for a straight-talking review of your currency requirements. Thanks for reading 👋
