QUESTION: Due to fluctuations in the euro exchange rate, my new property in France is going to cost me £30,000 more than I had planned for. What can I do now?

Matthew Evans

ANSWER: In the last three months the euro has become 10 per cent more expensive and more and more property purchasers are coming to terms with the fact that their money is not going as far in France as it once did. Because the rate has moved so much, affording your property has suddenly become a very real concern.

Can I go ahead?

If you are in the throes of your purchase you need to check the rate with your foreign exchange broker and do your sums again. If you can still afford to go ahead with the purchase, there are three possible options, depending on your appetite for risk:

• Risk averse

Secure the rate for your purchase as soon as possible using a forward contract. Look for a currency broker that allows you to fix the exchange rate for a transfer up to a year in advance. By doing this you avoid any further hikes in price if the rate deteriorates. The downside of this option is however that if the rate improves, you are still bound by the contract and cannot benefit from the cheaper euros you could have purchased if you hadn’t entered into the contract.

• Some appetite for risk

If your appetite for risk is a little greater, you can use a forward contract for a portion of the cost (eg 50 per cent) and take a risk on the remaining portion. This method does allow you to benefit somewhat from any favourable rate movements and it also limits your exposure should the rate weaken. It is known as hedging.

• Risk takers

For the real risk takers you can leave booking in your transfer with a currency broker until around the time of completion. You will leave yourself wide open to the prevailing rate at that time but the good news is the rate you get from a broker is usually better than your bank’s rate and you could benefit from any favourable rate movements.

Should I pull out?

For some, the recent rate fluctuations may mean the cost of your property has moved beyond your reach and you have to pull out and potentially lose any deposit put down.

A possible avenue to avoid turning your back on your dream property is to try renegotiating the purchase price. Depending on the situation of the seller, you could take advantage of being well into the purchase process and to them, a slightly lesser deal might be better than no deal.

As part of these negotiations, another option is to push the date of completion back as far as possible in the hope that the rate improves and the property becomes affordable again. This is however extremely risky and as a strategy is only useful if the property has become just a small amount outside of your budget.

In the cold light of day, it may be that you have to completely pull out of the purchase and re-evaluate the type of property that you can now afford. If this is the case and you are still keen to buy somewhere more affordable, the best course of action is to use a forward contract to lock in the cost of the property as soon as you find it. You can be sure then that the sterling cost will not change and unless something else happens to your financial circumstances, you will always be able to afford it.

I would always urge property purchasers to get in contact with their foreign exchange broker as early as possible in the process to fully understand how much you can afford and the level of exchange rate risk you face. A broker can help you better manage this risk and they very often offer market watch and daily update services which keep you informed as to what’s happening in the market.