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When should you transfer your overseas savings if you’re buying a home in NZ?

With the long-term effects of Covid-19 still unknown, a lot of Kiwi expats are returning from overseas with the intention to purchase a home. That means bringing money home and having to deal with currency exchange rates.

Here is an article on how expat Kiwis can buy property in NZ and return home”.

One of the most common questions from these buyers is when they should convert their funds to New Zealand dollars (NZD). Is the NZD getting stronger or weaker? When do they need their money in the country?

How much can the exchange rate affect my deposit?

Typically, returning Kiwi expats are bringing significant amounts of money home. This means a small movement in the exchange rate means a large change in their deposit.

Exchange rate example for £100,000

As at today (7th May 2020), the exchange rate is around 0.485 NZD/GBP. Meaning £0.485 converts to NZD$1. But as you can see below, the rate has swung between 0.46 to 0.547 in just the past 18 months. That means savings of £100,000 would have converted anywhere between (in NZDs) $183k and $217k. That’s a difference of $34k that could be used towards your deposit.

Monthly NZD/GBP movement – June 2016 to May 2020. Credit to IG Markets

When to bring your money back

So you need to bring some money back to purchase a home. What are some basic rules for when to bring this money back? Here are some things to consider about the timing.

Accept that exchange rates are largely unpredictable

A small portion of people are paid a significant amount of money to predict exchange rate movements. The majority of the heavy lifting is done by extremely fast computers specifically designed to analyse the flood of data.

Despite these complex algorithms, the big movements are triggered by unexpected news that affects the confidence in a currency. Maybe the RBNZ announces an unexpected OCR drop. An earthquake could happen in China that affects the amount of lamb or milk powder that we send there making our currency weaker across all the exchange rates.

The bottom line is that, for the majority of us, picking the next movement of an exchange rate is akin to putting your money on red or black on a roulette table. There is simply a 50% chance it will go either way.

A bird in the hand is worth two in the bush

Getting a mortgage pre-approval is about proving information to the bank. Proving your income. Proving your financial character. And proving your deposit.

If you are at the stage of seeking a pre-approval from the bank, it is likely you are serious about looking for a home. It’s our suggestion then that at around the same time as your mortgage broker submits your application to the bank, you exchange your money into New Zealand dollars, no matter what the exchange rate is doing at the time.

Why? The banks must assume the worst case scenario. An application sent through today with £100,000 as a deposit would get you around NZD$205k but the bank has to assume the exchange rate will move. This means the bank will scale the deposit by ~20%.

In other words, until the money is in New Zealand dollars, the bank will assume your deposit is closer to $164k. If we assume a 20% deposit:

  • an assumed $164k deposit means pre-approval for a $820k purchase
  • your actual deposit of $205k means pre-approval for a $1.025m purchase

Summary:

If you are at the stage that you are seeking pre-approval from the bank, it is probably time to bring your money into New Zealand dollars. It is easy to overthink exchange rates. It could get better, it could get worse.

But knowing exactly what you have available as a deposit means presenting a definite number to the bank. This means the bank can give you a pre-approval with few or no conditions allowing you to start shopping for your next home.

Additional information:

We have found XE.com to be a very good company for converting money to and from New Zealand dollars. With headquarters based in Canada, they are one of the largest and most well known currency exchange companies in the world. Anecdotally, the outcome for our clients seems to be around 5% better than other methods of exchange which would mean approximately NZD $10k more on a £100,000 currency exchange.

If you would like to talk to XE.com, give Simon Kelly a call on +64 9 306 3705 and tell him you heard about XE.com through Mortgage Lab.

Disclosure: Mortgage Lab will receive a small referral fee for this. The referral fee will not mean any additional costs to you.

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