Pound Sterling / Euro exchange rate fluctuations since the launch of the Euro.
Lets start by looking at the biggest difference in the Pound / Euro exchange rate over a 5-year period since the launch of the Euro on the 1st January 1999 and see the effect these fluctuations would have on the price of a Spanish property worth 300.000 Euros.
As this example shows the same Spanish property worth 300.000 Euros could have cost you 47,189 pounds more depending upon when you bought your Euros. That's almost 30% more expensive - a lot of money in anyone's books.
This simple example helps to demonstrate the potential impact exchange rates can have on the price you pay for Spanish property.
Price impact for people buying new build / off plan properties in Spain.
Pound Sterling / Euro exchange rate fluctuations over 18-month period.
A likely scenario for buyers of Spanish property is a Euro exposure spread over an 18-month period and made up of stage payments. This is often the case if you buy Spanish property off-plan in a new development or when you have a Spanish house built to order.
The following table gives a typical example of the stage payments involved in an off-plan purchase for a 300.000 Euro property, and how the Pound / Euro exchange rate over the same period affects the price of the purchase.
Because the Pound weakened against the Euro during this period the property ended up 8% (13.854 Pounds) more expensive than it had been when the buyer signed the purchase contract and took on the Euro liability.
Of course if the Pound had been strengthening against the Euro during this period the buyer could have ended up paying less in Pounds than might have been expected at the time of signing the purchase contract. However even if the pound had strengthened during this period it might not have benefited the buyer because of short-term swings in the exchange rate that might have gone against the buyer at the time when payments needed to be made.
Over a typical 14 to 18 month timeframe in which stage payments are made for an off-plan purchase the exchange rate between Pounds and Euros is likely to move considerably. This movement can have a big impact on the cost of the purchase in Pounds. However most buyers have to work within their budgets and need to be certain at the time of signing the purchase contract how much the property is going to cost them. The only way to achieve this is to use financial instruments that help you to manage your exchange rate risk.
Exchange rate impact on the price of buying a resale property in Spain
Pound Sterling / Euro exchange rate fluctuations over 2-month period.
If you want to buy a resale property that is already built and can be exchanged on straight away you might think that the speed with which you will complete takes out the exchange rate risk. However this will only be the case if you buy your Euros the moment you sign the sales contract and take on a Euro exposure (the obligation to pay Euros to someone at a specified date in the future). Very few people actually do this - it is just one of those things that most people overlook.
Typically when people buy a resale (ready built) property in Spain they pay a deposit of around 10% at the time of signing a private sale contract with the vendor (often buying Euros from their bank at extortionate rates), and agree to pay the remaining 90% at the time of signing of the deeds before Notary. In most cases the deeds are signed between 1 and 4 months after signing the private sale contract. This means that the buyer will carry a Euro liability for a couple of months and fluctuations in the exchange rate over even such a relatively short period can have a significant impact on the price in Pounds that the buyer has to pay.
The following example shows how a change in the exchange rate over a 2-month period between signing a sales contract and signing the deeds before Notary can affect the price in Pounds that a buyer will pay for a property worth 500.000 Euros.
The change in the Pound / Euro exchange rate means that the buyer ends up paying 16,011 Pounds more for the property than expected at the time of signing the private sales contract. This type of unexpected increase in price can cause serious problems if you are working within a budget.
The purpose of this section has been to show that exchange rate fluctuations over even short periods of time can have a big impact on the cost in Pounds Sterling of buying Spanish property. This introduces a significant element of uncertainty (called exchange rate risk) into your property purchase that you might prefer to live without. The next section will explain how you can eliminate this risk.
© Mark Stucklin (Spanish Property Insight)
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POUND STIRLING TO EURO EXCHANGE RATE ISSUES 
