Investors reaping rewards of euro mortgages

Country:  France

Real cost of mortgaged property in eurozone drops by 8% in four months. British investors who took out euro-denominated mortgages earlier this year in order to beat the poor exchange rate are already seeing the benefits.

In February, Conti reported that an increasing number of clients were opting for euro mortgages for their eurozone property purchase. This trend has continued, and investors are already benefiting from this decision. A euro-denominated mortgage not only allows them to take advantage of cheap interest rates, but could potentially save them significant sums of money if, as experts predict, sterling appreciates against the euro over the next few years, as this will reduce the sterling cost of the property purchase.

For example, if an investor had taken out a euro mortgage of €250,000 in February this year for a property in France, based on the exchange rate at that time of around €1.1 per £1, they’d have been required to make a commitment of around £227,000 to pay that mortgage off.

The exchange rate has improved since then to around €1.2 per £1, so it would now cost £209,000 to redeem the mortgage - a reduction of £18,000, or 8 per cent, in the sterling cost of the property in just four months.

If, over the next year or two, the exchange rate continues to rise in favour of the pound to €1.3, investors would only have to find around £192,000 to repay the mortgage. So the cost of the property would have reduced by £35,000 in sterling terms.

Investors would have to factor in the impact of mortgage costs and notaire fees.

Clare Nessling, Conti’s operations director, says: “A euro mortgage minimises the amount of sterling you have to exchange for the overseas property purchase, as you only have to transfer money for your deposit and fees for now. Even cash-rich buyers could consider taking out a euro mortgage until the exchange rate improves, at which point they can pay it back and ultimately reduce the price they pay for the property.”

There are a number of other benefits associated with euro mortgages. If, for example, you're going to rent out your property, having a euro mortgage means that your rental income and mortgage repayments are in the same currency. The big advantage being that the balance between income and outgoings on the property are not subject to exchange rate fluctuations, and it's a more stable situation than servicing the mortgage repayments with sterling.

A euro mortgage also allows you to benefit from European interest rates, which are often lower than sterling rates. Even a small difference could potentially save you a lot over the

lifetime of the mortgage. The fees on some euro loans can also be substantially lower than on some sterling mortgages.

And in general terms, one of the biggest advantages of an overseas mortgage is that the lender, similar to those in the UK, will do its own checks on the property, ensuring that a proper legal title exists, that the property is registered in the buyer’s name and that a valuation of the property takes place. Banks will also check other issues such as planning permissions and building licences.

Investors should, of course, consider the impact on costs should exchange rates go against their favour. These examples are based on the sterling strengthening against the euro, as widely predicted by experts.

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