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 31st July 2010
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Beat the weak pound The pound is at its weakest point ever against the euro and many would-be French property buyers are toying with whether they should hold off purchasing their desired property until the pound’s value improves. But with the French property market yielding such great prices at present – prices that property experts believe will increase by up to 15% in the most popular areas over the next year – it would be a shame for investors to miss out on that idyllic French retreat. The currency exchange rates in the Eurozone are 4.37% against 5.5% in the UK (at the time of writing) and the potential conversion losses make the prospect of buying French property appear even more expensive. There may, however, be a solution to minimize the effect of the weak pound when purchasing in France, and it comes in the form of a Euro Mortgage. So if you are someone discouraged by rising UK mortgage rates and the weak pound, but have the desire and cash to buy in France, your best option may be to leave the majority of your sterling in the bank and take out a Euro Mortgage with a substantial deposit. Mortgage advisors are recommending that buyers seriously consider this option because it is now possible to obtain a French mortgage without an early redemption penalty, and thus, after a minimum of 12 months, buyers have the option of paying off mortgage and taking advantage of potentially improved currency exchange rates. On the other hand, buyers who need a long term mortgage could take out a mortgage with a short first term of perhaps two years and at its expiration change to a UK mortgage if the pound has recovered against the euro. A considerable benefit to obtaining a Euro Mortgage is the fact that buyers need not pay for the property in its entirety in sterling: buyers only need to buy enough euros to pay the deposit and transaction costs. As for the monthly repayments, they are relatively small and spread over a long period. It would also be possible to buy currency at a fixed rate for several months ahead via what is called a Regular Payment Plan Steve Thornton, one of FrenchEntrée’s mortgage consultants compares the costs of a 3 year fixed mortgage in sterling and euro, assuming the potential exchange rate fluctuation, and demonstrates it with a hypothetical mortgage scenario: “If after deposit and fees a buyer needed to arrange a mortgage for say €125,000 (£100,000), that buyer’s best options may be to take out a Euro Mortgage because after 3 years if the pound recovers, they would be able to redeem the Euro Mortgage and take out a new Sterling Mortgage: “The balance to repay after 3 years would be €108,000. If after 3 years the pound had risen to €1.5, you would be able to take out a new Sterling mortgage of £72,000 (€108,000 at 1.5 euros to the pound) instead of £86,400 at 1.25 euros to the pound, a saving of £14,400. “We can also see that the monthly payments on a Euro Mortgage would be less than a Sterling Mortgage: if you were to arrange the 3 year fixed rate mortgage for €125,000, at the current exchange rate, the £100,000 mortgage in the UK would cost £830 per month at a rate of 5.74% whilst the French mortgage would be €990 per month at 4.95%, equivalent to £792 per month in sterling. “This example recognises the considerable savings one could potentially achieve at present, in acquiring a Euro Mortgage as opposed to a UK Mortgage.” (For illustration only, interest rates and currency rates may vary). The message here is that a Euro Mortgage is a feasible solution for cash buyers worried about the current value of the pound but who believe that it will recover. Further still, if the pound does not recover, buyers will still have beaten its weakness, and the Euro Mortgage would in fact be an even more attractive and cost-effective option: repayments will decrease until you are ready to pay the mortgage off completely, and you would have bought your French property at a time when their prices are very reasonable – an average 48% lower than UK property. For further advice on Euro Mortgages and whether it would be a beneficial option for you, please contact our FSA-regulated mortgage advisors. Your Next Steps 1. Apply Online 2. Call us to discuss your requirements on +44 (0)1225 463752 - 24hr 3. Email us with any queries French Mortgages Home Page |
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