Our client, the buyer, was referred to us by their conveyancing solicitor. The vendor in this sale is a corporate entity based in the United States.
Although buying a house in Prime Central London, our client, intentionally or not, used us as a means of enticing their vendor to accept a foreign currency denominated offer, to the benefit of all.
Previously our client's offer(s) had been rejected on the basis that, due to a weak pound, the sterling figure offered did not equate to sufficient US dollars to satisfy the vendor, or, more specifically, it's various stakeholders. In essence, the rate of exchange was scuppering what would have been a done deal.
In this instance we were able to assist in a number of ways and to aid more than one of the stakeholders in the process.
First of all, we were in a position to enable our client to offer just over 2% more to the vendor than was previously the case.
By electing to use Prime Cap for the conversion of their GBP to USD, the buyer's rate of exchange improved by over 2%. They had previously been talking with their private bank, a venerable but aged institution, and it was clear to us that we could feasibly undercut the rate they offered by quite some margin. This is often the case because, whilst clients might get preferential prices on money market instruments with their private bank - lending and saving - foreign exchange tends not to be a marketable product for the bank. Hence, the infrequent use of their dealers means competition is not a driver in determining the price the client gets.
One way of looking at this particular brief is to say that we made a strong case for the buyer viewing this as a purchase denominated in US dollars, rather than sterling. By doing this and by appropriating the FX exposure on the transaction the buyer was able to offer a good 2% more without actually increasing their own GBP outlay.
Given that Prime Cap was only introduced to the buyer and not the vendor, we weren't able to offer the vendor the benefit of our rate when converting whatever GBP amount was offered by the buyer; at the end of the day that would have achieved a similar result as it might have inclined the vendor to accept a quote of 2% less.
You'd be wise to note that between an offer being accepted, contracts being exchange and the deal being formally completed, rates of exchange will and do go up and down. In this particular instance, the deal rested totally on the vendor achieving a US sum. As broker for the buyer our objective was to make sure that an adverse movement in the rate between GBP and USD did not leave our client unable to satisfy the vendors need.
We could simply have suggested that the buyer engage a forward contract right from the point at which their offer was accepted...therefore guaranteeing that they had enough sterling to buy the USD their vendor wanted. However, doing so would have left our client wildly exposed to the whim of the vendor.
Prior to the exchange of contracts our client was without any guarantee that the sale would progress and, even then, were it to progress but for the vendor to withdraw, our client would be left holding a foreign currency in a volatile market and without any certainty as to their ability to rebuy back the GBP amount they started with.
Fortunately both sides' solicitors were able to reach the point of exchange quickly. This prompted our client, the buyer, to purchase the USD sum on a forward contract. Doing so meant that regardless of movements in the rate between exchange and completion, our client's GBP would achieve the USD amount necessary for the deal to remain viable.
It is fair to say that although the rate of exchange played an unwelcome part in negotiations, the vendor was eager to rid themselves of an asset whose USD value was so unpredictable. We suspect that the volatility of the rate was a strong factor in the vendor bringing the property to market in the first place; hence, our buyer was both the victim and the beneficiary of not only changeable rates, but expert navigation through them.
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