The hidden costs of owning a home in
To avoid the extra costs, Travelex Personal Transfers is advising all overseas buyers to consider fixing their exchange rates for up to two years, in a process known as ‘forward contracts’ – to ensure peace of mind.
A forward contract lets you secure an exchange rate for a payment to be made in the future. The exchange rate that you achieve on a forward contract is not quite as good as that for a spot contract but it does guarantee that you know the cost of the property, and it won’t change during the term of your mortgage.
Paying for a foreign mortgage in sterling can lead to wide variations in outgoings as the exchange rate fluctuates from month to month, depending on the state of the market.
As a recent example, Travelex Personal Transfers shows that a Spanish villa on the market for €250,000 in September 2007, with the Pound/Euro exchange rate at 1.4397, would cost an average of £173,647.
However, towards the end of December the British Pound fell to a four-year low against the Euro of 1.3350, resulting in the cost of the villa rising to £187,265 – requiring an additional budget of £13,618 in just two months.
Adding on the costs of banks’ fees and commission can push the extra charges to as high as £25,000 over a 25-year period.
Fraught with difficulty
Debbie Brown, Travelex’s head of marketing, said: “Buying a foreign property is fraught with difficulties. Not only can the extra red tape, language difficulties and foreign legal system weigh things down, but over the course of a 25-year mortgage, bank fees, commission and changes to exchange rates can add enormously to the amount people pay for a property.
“Not only will fluctuating exchange rates directly alter the price of a property before completion, but the delays and legal red tape associated with any property purchase will increase the risk of purchasers spending more than they initially intended.
“Even the most mundane things such as transferring a mortgage or rental payment are likely to incur a cost, and over a period of time this will quickly mount up. We would urge anyone considering buying a property abroad to think carefully about the total cost – not just the list price.”
The study by Travelex Personal Transfers shows the average foreign property can cost buyers an additional £25,000 on top of the original list price.
Fluctuating currency rates could add to the price of a property between the initial exchange and completion, while additional bank charges and commissions can, over the course of a standard 25-year mortgage, add an extra £13,000 to the total cost of the purchase – banks can charge up to £30 and take two per cent commission on each international mortgage payment.