Save money with the right conversion

Ray Williams, the 68-year-old chairman of film and TV production company Moorcroft Productions, is a recent convert to this route. In 2001, he bought a two-bed apartment, off plan, at Cala Mijas on the Costa del Sol for £70,000. He opened a Spanish account with Solbank, transferring sums from his UK HSBC bank account to pay the deposit and stage payments as work continued. "I didn't know any better - I thought it was the obvious route to take," he says.

Until this year he continued moving a few thousand pounds at a time from the UK to Spain to cover running costs like taxes and service charges, and each time he paid bank charges. But in 2005 he discovered that foreign exchange firms sold to private individuals at commercial exchange rates, significantly better than those offered by high street banks. After comparing exchange firms he chose Currencies Direct.

"I could have saved tens of thousands over the years," says Williams, who splits his time between his Spanish and High Wycombe homes. "This year alone I think I've saved up to £2,000. The bank rate today is about €1.42 to £1, whereas with Currencies Direct it's €1.47 to £1."

There are now scores of foreign exchange companies operating in the UK. They work like this:

* You register with the firm, usually free of charge.

* You are assigned a "personal dealer" who will discuss the best way to get your chosen currency at the best date - timing is crucial in deciding on a rate to get so you can buy immediately, at a fixed future date, or at a time when rates are most favourable (see box).

* You sign a faxed or e-mailed confirmation and payment form, stating where the funds will come from to buy the currency (typically your UK bank account) and where it will go to (typically your Spanish account).

* On receipt of your funds, the foreign exchange firm transfers the currency and informs you of its dispatch to your "beneficiary bank".

Charges vary - some are free, but typical fees are £15 for transactions under £50,000, plus £10-£15 for confirmation documents to be faxed or posted. Most firms will not handle exchanges of less than £2,000 so it pays to bundle up bills to be paid in euros.

Savings can be enormous. Exchange specialist Moneycorp says someone wishing to buy in Spain for €200,000 in May this year would have paid £134,526. In July, they would have paid £136,874 for the property, so by securing an exchange rate in advance, they would have made a saving of more than £2,000.

On top of that are the savings on transaction costs.Transfer tax, often called IVA, is 6 per cent of purchase price of a second hand property and 7 per cent on a new-build home; there is also 1 per cent stamp duty, legal and deed fees, and the buyer sometimes shares the seller's fees.

Really ambitious buyers of homes overseas can even negotiate euro mortgages at the lower interest rates prevailing in the Eurozone - but this can only be done if the repayments are in euros, too.

"With the euro base rate currently at 2 per cent there are some fabulous deals around with mortgages typically available at 2.75 per cent," said Moneycorp's Marc Morley-Freer. "Compare this to standard UK variable rate deals of around 5.75 per cent and it looks extremely attractive."

But you should try to protect against currency fluctuation. "One of the potential downsides of a foreign currency mortgage is currency volatility - but arranging a forward contract whereby you can fix the rate of exchange for a period of up to two years, eliminates such volatility," adds Morley-Freer.

Running costs for a property also require payments in euros, so offer more scope for exchange rate savings. Once you have purchased you must pay IBI (an annual real estate tax); if you live in a flat or shared development you pay a community charge to cover maintenance, swimming pools, gardens and so on; then there is an annual wealth tax based on the property's value; and finally there is tax paid on any income earned by renting out the home.

But there is one key problem to watch for on any foreign currency exchange.

Your "beneficiary bank" in Spain may charge non-Spanish nationals as much as 3 per cent to receive funds from overseas. There are ways to avoid or minimise this: firstly you can try to negotiate it down (and get any agreed deal in writing), or secondly you can use a notaire's or resident's account, which do not incur charges, and who can then make a transfer to your own account.

Shrewd planning rather than leaving exchanges to the last minute can save thousands on even the smallest of properties. Even better, hop around to get the best deal among the growing market of foreign exchange providers. Happy hunting.

There are four main ways of 'buying' foreign currency at a preferred rate:

1 Buy a lump sum of currency now at a "spot" rate - money is transferred to your overseas bank or a finance institution in one go, as soon as you order.

2 Buy currency later at a fixed "forward" rate - perfect for buyers making stage payments for an off-plan purchase.

3 Use a "limit order" to buy currency when it hits a designated rate - not recommended for most buyers, but if you have the flexibility to wait until a currency hits a highly favourable rate that you nominate, this is ideal.

4 "Spread" rates to safeguard against currency fluctuations - you can nominate a spread between the rate you most want, and a ceiling. Buy at any point in the spread.

KEY PROVIDERS

Currencies Direct (www.currenciesdirect.com; 020-7813 0332); Moneycorp (www.moneycorp.com; 020-7589 3000); World First (www.worldfirst.com; 0800 001 5055); Exchange Business (www.exchange-currency.co.uk; 0800 953 1384); Currency Solutions (www.currencysolutions.co.uk; 08700 42 43 44); Foreign Exchange UK (www.4xuk.co.uk; 0800 652 1985); Interchange (www.interchangefx.co.uk; 0800 107 4443); Tor FX (www.torfx.com; 01736 752142)