A forward contract lets you fix today's exchange rate for a payment you will make in the future, which is exactly what you need when you agree a property price now but complete months later. You secure the rate with a small deposit, then settle the balance when the contract matures, and the rate is the same whatever the market has done in between. For a UK buyer purchasing in euros, that turns an unpredictable cost into a known one. This guide explains how a forward contract works, step by step, and when it makes sense. For the wider picture, see our guide to buying property abroad.
What is a forward contract?
A forward contract is an agreement to exchange one currency for another, at a rate fixed today, for delivery on a set date in the future. It is one of the oldest and simplest tools in currency markets. You are not buying the currency now and you are not speculating; you are locking the price so that a future payment costs you a known amount in pounds. Currency specialists offer forwards to private clients for exactly this purpose, typically for settlement up to twelve months ahead, and sometimes longer.
How does a forward contract work, step by step?
The mechanics are straightforward. First, you agree the amount, the currency pair and the settlement date with your provider, and you are quoted a forward rate. That rate is close to the current spot rate, adjusted slightly for the interest rate difference between the two currencies over the period. Second, you secure the contract with a deposit, usually a small percentage of the total, which the provider holds. Third, on or before the settlement date you pay the remaining balance in pounds, and the provider delivers the agreed euros to your nominated account, your lawyer or the notary. The rate you pay is the rate you fixed at the start, regardless of where the market has moved.
Why use one to buy a property abroad?
Because of the gap between agreeing a price and paying for it. On most overseas purchases, two to four months pass between signing the contract and completing, and the currency can move several per cent in that window. On a €500,000 property, fixing at a rate of 1.158 locks the cost at about £431,800. If the pound then weakened to 1.10 by completion, the same €500,000 would have cost roughly £454,500, more than £22,000 extra, for a property whose euro price never changed. A forward contract removes that risk entirely: you sign your purchase knowing the sterling figure, and you can budget the rest of the move around it.
How much deposit do you need to fix a rate?
Typically a modest percentage of the contract value, paid upfront to open the forward, with the balance due at settlement. The exact figure depends on the provider, the currency pair and the length of the contract. If the market moves sharply against the position before settlement, a provider may ask for a top-up to maintain the deposit, so it is sensible to keep some headroom and to discuss this with your provider before you commit. None of this changes the rate you have locked; it simply secures the contract along the way.
What happens if your completion date moves?
Property timetables slip, so this matters. Many providers offer a flexible or window forward, which lets you draw down the currency early or settle within a range of dates rather than on a single fixed day. If completion is delayed beyond your contract date, you can often extend the forward, and if it comes forward you can usually draw down sooner. The practical step is to set the contract date a little beyond your realistic completion date and to keep your provider informed as the date firms up.
What does a provider need to set one up?
Setting up a forward contract is quick once you have chosen a provider. You agree the amount, the currency pair and the settlement date, and open an account with the firm, which involves the usual identity and source-of-funds checks. You then pay the deposit to secure the contract. Do this groundwork early, even before you have found a property, so that you can fix your rate within hours of your offer being accepted rather than waiting days to open an account. Medlock & Thames handles forward contracts for property buyers directly — speak to the desk to get set up before your offer is accepted.
What are the risks and trade-offs?
A forward contract is a firm commitment, so there are two things to weigh. First, you give up the upside: if the rate moves in your favour after you fix, you do not benefit, because you have locked your rate. For most buyers that is a fair price for certainty on a six-figure purchase. Second, if your purchase falls through, you still hold the contract and may need to close it out, which can leave you with a small gain or loss depending on the market, so it pays to align the contract date with a realistic completion date. The Bank of England publishes the daily spot rates that show how often the market moves, which is the very uncertainty a forward is designed to remove.
Frequently asked questions
Is a forward contract regulated?
Medlock & Thames provides forward contracts through regulated payment partners, which means client money is held in a segregated account separate from company funds. Speak to the desk before you commit a large sum.
How far ahead can I fix a rate?
Usually up to twelve months, and sometimes longer, which comfortably covers the deposit-to-completion gap on most overseas purchases. You agree the settlement date when you open the contract.
Can I use a forward contract for the deposit as well as the balance?
Yes. Many buyers fix the rate for the full purchase amount when they sign, then draw down the deposit first and the balance at completion, so both payments are at the rate they locked.
Does the forward rate match the spot rate?
Not exactly. The forward rate is the current spot rate adjusted for the interest rate difference between the two currencies over the period, so it can sit slightly above or below spot. The aim is certainty, not beating the market on the day.
Related articles
This guide is part of our overseas property series. For the full framework, read Buying Property Abroad: A Currency Guide for UK Buyers. See also our country guides for France, Spain, Portugal, Greece and Hungary, and our guide to what it costs to transfer money abroad.
