The Benefits of a Forward Contract

Embarking on the journey of buying property in France is undoubtedly thrilling, but it also brings along its fair share of challenges, especially when it comes to navigating the complexities of foreign exchange.

Exchange rates are constantly fluctuating. This means that when you decide to buy a property abroad, the real-terms cost of your purchase can change with the rates. So, if you’re venturing into the French property market, don’t forget to consider how you’ll manage your overseas payments.

One effective financial instrument that can help with currency risk is a forward contract. This article will explore how you can use a forward contract to purchase a property in France, helping you adopt a strategic approach to foreign exchange.

Why Currency Management Matters:

In France, all property transactions must be conducted in euros, irrespective of the buyer’s or seller’s nationality. For those holding funds in currencies other than the euro, efficient currency exchange management is imperative.

This involves monitoring exchange rates from the initial stages of planning and travel to France all the way through to completing the property purchase. Failing to address currency risk exposure during this period can lead to unforeseen financial implications.

Understanding the Solution: Forward Contracts*

A forward contract is a powerful financial instrument that can help property buyers with the uncertainties of currency fluctuations. Simply put, it is an agreement between two parties to exchange two currencies at a predetermined rate in the future and can help ensure the property’s price is not affected during the months between deposit and completion.

Advantages of Using a Forward Contract:

• Protect Yourself from Exchange Rate Fluctuations: It’s easy to underestimate the constant fluctuations in exchange rates, but these fluctuations can significantly impact the final price paid for a property. A forward contract can protect you from unforeseen currency rate changes.
• Lock in a Favourable Exchange Rate: Securing a forward contract allows you to lock in a favourable exchange rate when making the initial deposit. This guarantees the same rate throughout the entire property purchase, meaning you don’t have to worry about volatility in the market.
• Secure the Rate in Advance with a 10% Deposit: You can initiate a forward contract with a 10% deposit, providing flexibility and ensuring that the entire amount doesn’t need to be exchanged upfront. The remaining payment can be settled when it’s time to complete your property purchase, making it accessible even if you don’t have immediate access to the total funds.
• Fix the Exchange Rate for Up to Two Years: Beneficial for off-plan purchases or those utilising mortgages, forward contracts can be used with Regular Payment Plans to fix the exchange rate on smaller payments for up to two years, too. This long-term rate certainty simplifies financial planning and brings stability to budgeting.
• Have Certainty Over Your Budget: Fixing the exchange rate with a forward contract can give you the confidence of knowing the exact price you’ll pay for the property upon completion. This certainty allows you to plan your finances accurately throughout the property acquisition process.

For individuals dreaming of owning property in France, a forward contract can be a valuable tool to help you navigate the intricate landscape of foreign exchange. By protecting against currency fluctuations, ensuring a fixed exchange rate, and offering payment flexibility, forward contracts empower you to make informed decisions as you fulfil your dream of owning a property in France.