Impact of exchange rates when buying a property abroad

If you’ve ever purchased a property within the boundaries of the UK, you’ll know that this can be a complex and time-consuming pastime that’s considered to be more stressful than either divorce or bankruptcy.

This process can be even more challenging when buying property abroad, as there are additional factors to consider such as currency exchange rates and potential geopolitical risks in some instances.

We’ll explore how exchange rates will affect the price of overseas property, while also considering the impact of constantly fluctuating currency values.

Impact of exchange rates

How Does the Exchange Rate Impact on Property Prices?

In simple terms, an exchange rate is the value of one nation’s currency measured against the fiat currency of another country or economic zone (such as the EU).

This will dictate how many US Dollars it will take to buy a single Euro, for example, with this rate changeable and susceptible to a number of macroeconomic factors as it continues to fluctuate over time.

According to the current exchange rate, a single Euro is worth $1.22, while this example of a major pairing also tends to trade within a narrow and predictable range over time.

So how does this translate into a practical house purchase? Well, if you were a US-based investor who wanted to buy a €100,000 house on the continent based in Euros, this would cost you $122,200 in dollars.

However, if you had completed the same purchase on March 20th, 2020, you would have seen that the exchange rate was considerably lower. This meant that a single Euro would have cost just $1.0657, with the same €100,000 house setting you back a relatively meagre $106,570 overall.

buying property abroad

The Role of Fluctuating and Weakening Currencies

Not only do we observe a dramatic difference, but we can also see how fluctuating exchange rates and devaluations of certain currencies can impact directly international house purchases.

More specifically, a buyer based in the US benefits when the dollar strengthens against the relevant foreign currency, as this will see the latter weaken and depreciate in value-creating more competitive prices.

Of course, this is also impacted by factors such as supply and demand, and it’s fair to surmise that the latter will increase significantly if the Euro weakens on a huge scale and a larger number of buyers flock to the market. In general terms, however, a strong dollar is good news for US buyers as it increases their purchasing power in the global property market.

Conversely, instances, where the dollar weakens against the Euro, will create a more favourable market for those who already hold property and would like to complete a sale in the foreign currency.

This is why it’s important that investors utilise forex brokerage platforms to monitor live exchange rates and time their transactions, as this can make the difference between optimising profitability and recording a loss.

If you buy a home overseas and intend to live there, currency rates also impact on your living expenses when you first arrive. Once again, a strong dollar will improve your purchasing power in this instance, whereas the prospect of a weak greenback should encourage you to snap up a large bankroll of Euros ahead of time!