Another way to pay for jet-to-lets

Using a foreign exchange specialist rather than a high street bank when organising the finance for an overseas mortgage offers benefits to clients and brokers, says Marc Morely-Freer

More and more UK buyers are looking to live the dream by securing second and retirement homes in Europe and beyond. Spain and France continue to be the first choice of overseas destinations for most, but further afield a growing band of buyers are snapping up properties in the US, South Africa, Australia and Canada.

And as the UK jet-to-let market continues to deliver muted returns, it’s no wonder would-be investors are casting their nets further afield in search of decent investment propositions.

Wherever buyers decide to target, many purchases are dependent on releasing equity from UK properties to raise a deposit for the overseas property purchase. The lucky few will be able to buy outright but most will need an overseas mortgage.

While in many areas of this country mortgage transactions are sluggish due to the subdued market, lending figures suggest brokers and independent financial advisers have been enjoying a healthy run of business, arranging deals for buyers either moving abroad altogether or picking up a second home in the sun.

This is a potentially lucrative area for brokers in terms of commission volumes and remortgage business. There is also the additional potential for saving clients money in the longer term.

With an overseas mortgage arranged in another currency, buyers take on what is often a significant exchange-rate risk. One alternative to using the services of a high street bank is to fix the exchange rate upfront with a specialist currency provider – the advantages to buyers are many, but primarily fixing an exchange rate means monthly payments won’t fluctuate in line with the foreign exchange markets.

Timing is crucial in the process. Exchange rates change by the second and this could mean the amount paid in Sterling will also change. Fluctuations of up to 10% in a short space of time are far from uncommon, particularly with more volatile currencies such as the South African rand.

To compound matters, for those making monthly repayments on an overseas-based mortgage, the process by which the relevant payments are made can prove expensive in terms of transfer and commission payments. But with assiduous planning, it is possible to save clients some eye opening sums.

This is where a specialist currency broker comes into play. When using a regular payment plan, property buyers can agree to buy their currency for delivery from six months to anything up to two years, and fix a favourable exchange rate at the time of the agreement.

For those making regular overseas transfers, such as monthly mortgage payments, setting up a regular payment plan will remove the worry caused by exchange rate fluctuations when making currency payments over a long period of time. Also, the transfer fees will only be a fraction of the cost charged by high street banks and free from onerous commission charges. Importantly, some specialists will also allow clients to enjoy the convenience of making their payments by direct debit.

A foreign exchange specialist will typically charge 4 in transfer fees per transaction and offer endless free guidance and market information, whereas a high street bank is invariably far more expensive and less helpful. Some will charge as much as 30 to simply arrange the transactions so the savings over a year can be significant.

Take the recent example of a couple buying a property in the US for $200,000. They arranged their mortgage through a dedicated mortgage broker and agreed a monthly repayment of $600.

Their payments were scheduled to start in July of this year, when they agreed an exchange rate of 1.72 to the pound. This meant their repayments came in at 349 per month.

But if they had fixed an exchange rate in March when the rate was a significantly more favourable they would now only be paying 310 per month. That saving of 39 per month adds up to 468 per year.

These savings also extend to transfer times. Depending on cut-off times, transfers to Europe and North America usually arrive on the same day and transfers to destinations further afield rarely take longer than two days. Establishing a trading facility with a foreign exchange specialist couldn’t be easier. Clients complete a trading agreement and once an exchange rate has been agreed and the specialist receives the client’s funds, they will be transferred to the specified bank account.

As well as these obvious benefits to clients, what advantages are there to mortgage brokers for recommending a foreign exchange specialist and how do they engage in the process? For a start, most reputable specialists will pay commission to brokers for clients that are referred. And depending on the frequency and value of the introductions, some will offer a tiered commission rate, making it possible for a broker to earn generous commission.

When clients are transferring large sums of money, you will undoubtedly want to ensure their money is in safe hands. Using an established currency company is your best bet. Not only will this ensure you have peace of mind when advising on or transferring client money overseas, but as the largest players boast high trading volumes, you are likely to get far more competitive exchange rates along with superior customer service.

There are other attractions to securing better exchange rates for your clients. For example, they may have further capital available to channel into other products and services offered by your company and of course you will also be delivering a service which adds value to your firm’s offering.

Being a part of a foreign exchange specialists’ Affiliate Partnership Programme will also allow you to offer clients a direct link to a currency expert (who will often work extended hours, enabling the client to trade at his or her own convenience). This will facilitate a fast and professional response to even the trickiest of queries.