PODCAST - Currency exchange for property transactions the Smart way

Mark: Welcome to episode 5 of the SnowOnly Property Podcast, a slightly different angle today, we have with us Alistair Hutson, who is head of Private Clients Partnerships for Smart Currency Exchange. Instead of speaking to a real estate agent this week, we speaking to Alistair about currency exchange and how that can obviously aid your property purchase or sale I imagine all around the world. So, Alistair welcome to the podcast.

Alistair: Thanks Mark. Good morning to everyone.

Mark: Let's start with some very simple questions. Let's explain a little bit about your business and how you can be of service to the real estate industry around the globe.

Alistair: Absolutely. So, I work for Smart Currency Exchange. We've been in business since 2004. We are an international payment specialist and we focus on property transactions all across the world. So, the transfer of one currency to another specifically relating to property as well as some other facets like investments and smaller payments. That's our remit. We've got a big presence across the UK, Spain Portugal, France and Cyprus. And we also extend over into areas like Canada Australia and Asia as well.

Mark: Now, I was a real estate agent in my previous life and obviously there was such a big point in the transaction where we could have used your services. We'll get onto that a little bit later but let me just kind of rejig the questions a little bit. What point of the transaction from a real estate point of view, do you enter? Where do you come into play?

Alistair: It's a really good question. There's no right or wrong answer, however, from our side, the sooner, the better. International property transactions are exposed to a really inherent type of risk, which is all around the exchange rate. You've got an unknown time scale from the point at which an individual looks at acquiring a property, right at that very beginning inquiry stage all the way through to the moment when funds are due into the notaire’s account or the lawyer’s account. Now that could be a month. It could be six months, could be 12 months who knows. Over that period of time, the exchange rates will be moving on a constant basis, which means that one end of your transaction, whether it be in euros or US dollars is going to be changing. And that's a massive risk to individuals.

If you look back at the last 18 or 24 months, there were some huge exchange rate movements during the global pandemic, as much as 14%. And whilst it's unlikely that we see that level of volatility again, it's one element of financial markets and currency that no one can predict and no one can control.

But it's really, really important that, just like you might have a mortgage specialist, you may have a financing specialist so that you have someone there in your buying process who is a currency specialist like ourselves who can sit down and take you through not only the risks you're exposed to, and provide you with some guidance and ultimately a solution that you can use to try and reduce that risk where possible.

Mark: I'm pretty familiar with this now. So, in terms of agreeing a price between the buyer and seller if they're doing international payments, you can fix the exchange rate on that particular day. So, when they go to sale and purchase agreement at the end of completion, they know exactly how much they're getting for their money. So, then they don't lose money.

Alistair: Correct. Yeah. So, it's called a forward contract. It's a really, really simple tool. So, it allows a customer to acquire or purchase a set of currency, for example, 250,000 euros, at today's exchange rate, which could be 118 for delivery in September next year. So, we will purchase the currency on behalf of the customer. It'll be parked in a bank account (in a client’s account for them), They would transfer to us a small deposit which is effectively collateral, or sometimes known as margin, to be held against the funds that we've bought. And then come September next year, you would transfer the balance and you then know that that 250,000 euros has a fixed cost of 200,000 pounds, for example.

So, it's a very, very simple way for people in that process to go, “this is my budget in Sterling… This is how much it's worth in euros… Nothing's going to impact that and I can act with certainty over the buying journey to transfer the funds at the time that's right for me, without any hidden increases.”

And the increase in costs: although on a weekly basis, Sterling Euro may only average about a move of one and a half percent, if you stretch that out over six months, it can be as much as 10% in some cases. On larger property values it becomes quite scary all of a sudden if between one month and the next you need an extra 75,000 pounds to complete on the purchase.

Mark: Which inevitably will not complete?

Alistair: Yeah, there'll be some panicked voices and emails flying around to get a few more days overdue. But for most people that kind of increase can be the end of that particular journey.

Mark: I've experienced it many times and it is inevitably the end of the journey.

So, obviously SnowOnly deals with ski properties specifically, but you deal with all real estate transactions. So, if anyone wants to contact you, as long as it's international payments, then they can use your services?

Alistair: Yeah, it's really varied. I think we're quite fortunate that our predominant market is property and our partner network all across the world has got international clients who are buying or selling property and they come to us for guidance.

But it does cover a huge­ area of requirements. It could be something like international inheritance. It could be repatriating funds from an investment account. So, in America, for example, companies like E-Trade or Fidelity, they're quite popular platforms to hold investments, getting the money back to the UK, for example, can be quite tricky. So, we could be brought in to help facilitate the withdrawal of funds from an investment, things like foreign salaries, all sorts. So, anything that involves a currency transaction. There are many ways that you could attempt to move that money around. You could go to the high street bank, you can use one of the many providers that are out there, like Smart to figure out a better way to transfer it. And that better way, it can cover so many areas.

Obviously the exchange rate is one really simple way for you to understand how much your transfers cost. But for us, it's all about that service and risk. So, we can help those customers understand: okay, I need to transfer X amount of funds over a six month period and I want to reduce the risk as much as possible. And you'll be allocated to a dedicated currency trader based in London who will sit there and work with you through the duration of your account with us to achieve all the things that you want to achieve.

Mark: So in terms of a property transaction you are predominantly contacted by real estate brokers as opposed to the buyer and seller or the lawyer, are you?

Alistair: So, my team deals specifically with the partner side which is the real estate brokers, the mortgage advisors. So, we are working with them to help their clients. The Trading team is the one that is dealing exclusively with the actual end client, if that makes sense.

Mark: Yeah. So you park yourself in the middle of the real estate agent?

Alistair: Yeah, absolutely. So, we are one step removed. So, anyone that has a client base which could be deemed as international, it's worth having a think about whether or not there's an angle to partner with us or for at least us to be introduced into that conversation to help those customers.

Mark: I guess the easiest question now, while we're on the subject is: how would people kind of set up an account? How would this process work? So the just give you a call, send an email? Obviously all this info is on SnowOnly… you can kind of check it on there, but if they wanted to do something that wasn't ski specific, how do they get in contact with you?

Alistair: There's a few different ways to do it, visiting our website. So if you search for “Smart Currency Exchange” you'll be able to register as a private client. You can register via the phone, although it's preferred to do it through the website, the journey's really straightforward. So, you fill in your application including your name, your date of birth, where you live, and then you go through a verification process.

Smart Currency Exchange are regulated business by the FCA. So, we have to follow a very strict procedure of opening client accounts, completing KYC requirements and then facilitating your transfer. So, it's a three step process but most accounts are open within a few hours. So, it's really a very straightforward process.

Mark: And obviously to book the trade again, takes minutes I would've thought?

Alistair: Yeah, so it's really easy. To be fair, a lot of our competitors have gone down the route of investing lots of money into apps and really fancy platforms our remit and what we deem to be our unique offering is the fact that we really encourage customers to book their currency transfers through our trading team. There's no additional cost or any fees associated with that but we really value the fact that we can speak to our customers on the phone, take them through that journey and make sure that we answer any potential questions or concerns that haven't been covered off yet. Which when you're dealing with personal cash via a website or via an app, you can lose that that touch. So, for us it's really about booking trades with our team in London and making sure that it's as smooth as possible.

Mark: So, Alistair I think one of my questions is how much money you can save on a real estate transaction, but I guess we've covered that in a sense. So, I'll throw a little bit of a curve ball at you. We are talking a little bit about competitors, so what makes Smart the best and why should they come to Smart?

Alistair: Yeah, it's a good question. If anyone’s listening that's ever moved money before, I guess there's two camps you can fall into.

One is going to the bank. The banks have always facilitated international payments. It's a horrible, clunky process to use them. For example, we helped a group of customers last month that were doing an international inheritance transfer. The bank in New Zealand that they were dealing with gave them a 48 hour response time to any inquiry. So, not only did they have to wait two days to get a response on what the transfer process would look like. They also had to request it at four o'clock in the morning because of the time difference. So, not customer friendly. In fact, I'd say it's almost anti-customer friendly. Very clunky and also for them, they had absolutely no idea what they were really getting into.

Then you transfer into the other camp which is ‘international payment specialists’. Again, if people have used someone like Smart before there are lots of people out there offering the service we offer. There are really only a small select few of top currency players that are focused on this private client space and Smart Currency is one of those.

And for us, like I said we don't claim to have the best app or the best online system, but what we really have is a very, very good team of account managers and currency traders in London that will take you through a fairly arduous qualification process for your requirements. They will test your budgets, they'll test your buying process and make sure that at the end of it you have a solution that will ensure that you’ll get whatever you are purchasing. And that's why property is so important because property is such a dream transaction and to potentially derail it or to potentially lose out on acquiring a property, because you've speculated on whether the exchange rates might go in your favor, for us is crazy. And we don't want any of our customers to be in a situation where they can’t complete because of something that no one can control. So, it's a scary concept and that's our mission to be that trusted voice in international payments.

Mark: I think it's a really interesting point because in terms of real estate for me doing international real estate for such a long time, there are so many possibilities of the real estate transaction falling over. You're always trying to keep it on the tracks all the way to the end and there's emotional things that come along with it. And obviously setting the currency is such a big thing now. I wish I'd known this 10 years ago, but it's such a big thing. And I think any real estate agent that's listening who doesn’t do this should speak to Alistair because it's such an important part of the process and you can save a lot of deals at the end of it. The question I had for you, is how much currency risk exists in an international property purchase?

Alistair: It's a really good question. And the answer is unknown. There's so many factors. And like you just said, during that property transaction, there are many different things that could come in to try and derail it. Currency is certainly one of them. I think for us, what's really fascinating is when we speak to customer’s right at the beginning of their buying journey, they are right at the very start of what's going to be potentially three to six to 12 month process. They have a very good idea of what is affordable at this point in time. Depending on what happens in the currency markets over that period of time, that affordability will move significantly in some cases.

So, everyone regardless of whether you are a first time inquiry or if you're someone that's acquiring a second or third property, until you physically have the currency you need to purchase that property in a bank account in the local country, you are exposed to currency. It's as simple as that.

I think using Sterling Euro as an example for people in the UK who are looking at properties in France, March, April last year, when the pandemic really took off, Sterling Euro dropped to about 1.04, which for all intents and purposes, if you add in a bank margin for an exchange rate is parity one for one. And if you rewind the clocks three to four years ago, when we were at 1.40, yeah. It's a monstrous difference in affordability and how far your budgets can stretch. There were even talks when we were at 1.04 that Sterling Euro was going to go below one, which was a terrifying concept that we find ourselves in.

Those movements, those reactions by the markets, they can't be controlled by anyone. No one can tell you whether it's going to go higher or lower tomorrow or next year. But what we do have is those tools to be able to say to you, right, you've made a commitment to buy a property in France. It may be this one you're looking at now. It may be one slightly further down the road, but you need to know that your budget of half a million euros is only going to cost you X amount Sterling. And the only way you can do that is either transfer the full amount of Sterling into euros and park them in on one of our segregated client accounts until you've opened a French bank account. Or if you don't have the cash flow available and you want to keep some Sterling available, then you can take out the full contract, which you mentioned earlier. So, let us buy the 500,000 euros for you. You transfer us a deposit. We park the funds in our ringfenced client account. You contact us in six months’ time when the funds need to be transferred. And we'll receive the balance off you and make the appropriate transfer.

Mark: I think for anyone that's listening especially from a real estate point of view, I know that people are a little bit skeptical about these things sometimes. And they're like: “Oh, it's a hassle opening up an account”. A hundred percent: do it, or at least speak to Alistair because I know from experience what a difference this makes.

My last question for you, Alistair, is what advice would you give to someone looking to use your services? Is there any additional advice you can give the listeners to help them with the real estate action process?

Alistair: There's a couple of things. The first one is it's really interesting. I think it's a human behavior but I would really try and avoid, once you've set your budgets, avoid looking at the exchange rates too often, as it can become a bit of a curse. We speak to loads of clients that are in their buying journey and they say to us: “I wake up in the morning, I check the exchange rates. I go to bed, I check the exchange rates.” The only reason that affects them is because they haven't, or they are in a position where they can't actually take out a full contract, or they're not quite at that stage where they're ready. Therefore their entire buying process is hinged on whether the exchange rates are going to go in their favour or out of their favor, which they can't control and neither can we, which creates a really horrible situation for them because they are literally checking it out on a daily basis. Sometimes hourly basis.

Last week, we had the Bank of England's interest rate announcement that had an impact on the markets that obviously affects people's affordability. So, people are sat there waiting for economic news that might edge them closer towards their goal.

And then we move into that really dangerous space of speculation whereby your purchase or your property sale is hinged around the currency markets. So, I think once you understand currency, and again, we don't expect everyone to be experts. We've got clients of ours that have worked in trading floors at banks, and they will come to us and say: “my remit is XYZ. I'm relatively unaware of how your business and how the FX market works. I'd like you to take me through that journey.” So, it doesn't matter where you are in that education piece, the best thing you can do is speak our team in London. They're really well versed in every type of transaction you can imagine. We've got loads of products and services that you can use to build into your buying journey.

And ultimately we're there to work for the client and to make sure that those ambitions, those dreams, whatever they might be, that we make sure that we facilitate them and that we do it in the best way possible.

Mark: But for all these real estate real estate transactions, obviously you are trying to get a balance between the buyer and seller. So, you are just giving, from the outset, transparency to what people are paying in a real estate transaction, because if it fluctuates anyway and someone feels like they're winning someone then has to lose. So, it always has to be a level playing field. So, it's better to write it on a contract, to know exactly how much people get. So, when the really estate sales and purchase agreement finishes at the end, then everyone knows exactly the payment. And that's essentially it, isn't it?

Alistair: Yeah. So I think to give everyone a bit of background on the full contract, you won't get that from a high street bank. If you went to Nationwide or Lloyds or HSBC and said, “I want to take out a full contract to give me certainty”, they don't offer that product. A lot of the neo-banks and FinTech startups, they don't offer that facility for them. It's all about churning people through an app and a platform: high volume transactions.

Whereas the full contract piece is so simple. To give everyone an example, it was originally designed to help businesses. So, if you imagine you're a CFO or a financial director, at the beginning of each financial year, if you are importing or exporting or your whatever you're purchasing, you need to have a rough idea of how much is it going to cost your business each year to buy a million euros worth of product from Italy. Now, if you buy those euros all throughout the year at different times, you have absolutely no idea what those costs will be, because it depends entirely on the exchange rate.

So, the full contract was designed for financial teams to go: “we will purchase a million euros for you at today's exchange rate.” That million euros can be utilized all across the financial year as and when you need to draw down from it. So, the FDA can sit there and go, “we've booked a million euros at 1.18. I know now that my costs for the business are 800K and doesn't matter where the exchange rates go.” If they move to parity, if they go to 1.40, it's irrelevant. It doesn't impact us because our exposure is a million euros and they've been bought. And that whole product offering is now available to the retail market as well, for things like property and it works really, really well.

I think for a lot of people, it might take them a couple of times to get their head around the mechanics of it. That's exactly why we're here to take you through that journey, explain to you all the different tools that are available, let you make the best decision that's right for you. And that decision will be based on risk appetite. It will be based on your timings and where you are in that journey. And our team in London will support you on that. Whether it's one or two phone calls, or in some cases, we have customers that are with us for six or seven months and they might not book their transfer until the latter part of that journey when they're in the right position financially in that buying journey.

Mark: Alistair, thank you so much for your time. I think that's plenty of food for thought for people. You can contact Alistair, I'll put all these details below on the links but honestly, if you are a real estate agent of doing a transaction, then please get in touch with Smart Currency Exchange. It's a brilliant service. Alistair, thank you very much for your time. And I'm sure we will get loads of people coming your way to book their forward contracts.

Alistair: Perfect. Thanks Mark.