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Million Dollar Houses


Brits buying in the US or Americans buying in the UK. Whichever way you look at it, the property being acquired is priced in dollars.

So, how can you make the most of this fact and what are the different FX treatments for these transactions whether you're buying or selling...

Prime Cap does a lot of work with London based professionals who are salaried in US dollars. They may be paid in USD because their employer or parent company is located on the other side of The Pond, or, they may be dealing in instruments that generate revenue denominated in the 'Green Back'. At the end of the day, wherever their head rests, they will need, if not want, to convert funds into British Pound Sterling and the rate of exchange, the mechanism by which they convert and the institution, banking or not, they charge with facilitating such transactions can have a significant impact on the amount of money they are left with.

One of our more senior traders recalls enquiry with one of Mayfair's more prominent Hedge Funds as to how they repatriate UK earned USD to NYC. It became apparent that the firm in question moved upwards of £250,000 daily into their USD account. They banked with one of the largest USD clearers in the world, and yet, their conversion was 0.35% less competitive than what the brokerage up the road could and would offer. This is a colossal margin of difference in the corporate FX world.

The suggestion has been made that because the movement of this money was pure administration of funds and cash flow, and not for any particular project or purchase, looking more deeply at what was being wasted was less of a priority. If you believe that to be a sensible, rational view then one wonders what your board makes of your perspective. We digress.

Minute by minute, day by day, the rate of exchange will go up and down. Therefore, two things are occurring, simultaneously; how you might be affected or how you might view one or both of these two things depends on whether you are buying or selling the currency (USD in this case).

Someone with USD who is buying a house in London is effectively being told what the USD cost of this sterling priced asset is by virtue of the rate of exchange. The movement of that rate translates to the increase or decrease in the USD cost of that asset - self-evident perhaps?

Someone selling a GBP denominated asset, for instance a little mews house in Lennox Gardens, and hoping to bring or send the proceeds to an account in the United States must accept that the USD amount they will deposit in said account depends, again, on the high or the low of the GBP/USD currency pair.

We outline these two perspectives in such a simple fashion largely to flag up the fact that in any transaction like this, a transaction of both size and complexity (in that persons in other territories are executing a deal) the objectives of each party are incredibly pertinent to what is considered appropriate action by the broker involved. Add then the idea of two US based entities, corporate or private, selling and buying a GBP denominated asset to each other and hoping to pay from and repatriate to the United States respectively - how does one navigate that?

Well, we had just such an instruction and we handled it thusly:

both parties communicated through US based attorneys to arrive at a USD figure for the transaction. Such are the legalities of matters like this that the conveyancing would be done in London. Each party had their own solicitors to play the relevant roles. The question you might well ask is, given that the asset is priced in GBP but one party is paying in USD and the other hopes to receive in USD, how can either side feel confident that what they are converting will equate to what the other side is expecting? In short, with very great difficulty. In this instance the vendor has in fact made life far more difficult for themselves. By enabling the buyer to agree a set USD price, the vendor has himself taken on the FX exposure (a vulnerability to the rate of exchange not enabling him to realise the USD sum he wants). You would be forgiven for concluding that...

On the basis that when their US binding agreement was signed, the vendor would hedge his exposure and fix the USD he might receive for a set GBP figure, the buyer did the same thing but bought the set GBP amount. The two parties then agreed to make good on each other short fall (they were evidently on good terms) so that an equitable and yet predictable outcome was reached. They made good on the shortfall domestically in USD.

If you are buying a fixed price foreign currency denominated asset then you can do

little better than ensuring that your cost, in the currency you hold, does not rise.

This is known as 'Forward' buying and is a very simple way of fixing a rate over a longer term. It is interesting to note that, when considering 'bonus time' in The City, many of our clients working in the financial markets (and therefore rewarded in USD) will look to lock in the rate, sometimes months prior to the date of their annual windfall. Take the present market​​ conditions...or rather those of the summer of 2017...fixing the rate of exchange to convert your US bonus to sterling so that this rate is available come the New Year or the financial year end would be considered fairly wise. The only risk being that the dollar strengthen further, improving from the point at which you locked the rate. Still, you would be doing remarkably well in a broader sense as the rate reached multi-metric highs.

Likewise, the London based vendor who, worried that the USD may resume its unprecedented strength against the pound in the New Year, might like to lock-in and sell

a proportion of the GBP they'd take for their property. Ensuring not to lock in the whole GBP sum, unless of course contracts have been exchanged with a buyer, would be the most sensible approach. Thence, once completion has reached, you can watch as your GBP are converted to USD at a rate some points better than the market.

As ever, we counsel against a purely 'wait and see' approach to converting funds when one doesn't have a date, value or rate one has to work to. This is simply because you might be waiting forever. Yes, you want the 'best' rate you can get, but, we find ourselves smug with the retort that the best rate is relative.

When we talk about identifying both your objectives and your priorities we do so because they are not the same thing and, on balance, we may be able to deliver that which is important to you as well as achieving a number of other valuable elements on your wish list.

If the most important this to you is that money arrives there today, then we will put a pin in giving you in depth analysis of what economic data might move the market in the near term, because, with the top priority being speed, our more macro outlook couldn't be relied upon to any great extent.

Conversely, if you only have a set number of USD and you must achieve a specific GBP figure pursuant to the conversion, then either fixing the rate forward or acting the moment the market moves to your goal rate, are the two things motivating the trade...everything else is immaterial.

What you want to achieve may be simple and there will certainly be obvious ways of 'doing' it, but, out niche is guiding you towards those ways of doing it that arent coined on a digital advert or poster. You will have heard of specialist lenders vs your bank, 'lawyers in a box', the 'D I YISA'; someone like Prime Cap is the specialist to the high street mass market provider - hopefully our website and other material (the referral you received maybe) will have conveyed as much...however, in an environment that plays on it's participants' ignorance of their options, sophisticated though those participants might be, taking the time to understand what is available and humanising the processes that will save and make you money is the least someone can do.

If you'd like to have a chat with one of our team then please give us a call on 02031728193 or message us at dealers@primecappayments.com - you won't regret it.

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Prime Cap Payments Limited (T/A Prime Cap | Prime Cap Payments | Prime Cap Global Payments) is registered in England and Wales No: 10755730. Registered address: 27 Old Gloucester Street, London, WC1N 3AXPrime Cap is partnered with, and a programme manager of, Ebury Partners UK Limited who provide Prime Cap's FX and payment services.  Ebury Partners UK Limited is authorised and regulated by the Financial Conduct Authority as an Electronic Money Institution (Financial Services Register No. 900797) and is registered in England and Wales (registered no. 7088713). Registered office: 3rd floor, 100 Victoria Street, Cardinal Place, London, SW1E 5JL.  Ebury Partners UK Ltd is registered with the ICO with registration numnber ZA345828.