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Euro mortgages offer scope for profit

Property investors buying second homes in Europe could profit from the weakening euro and low interest rates by taking out a euro mortgage, say brokers.

Concerns over Greece’s debt crisis and slowing growth in other eurozone countries has seen the value of the euro fall in recent weeks. The currency slumped to a nine-month low against the dollar of $1.3433 last week. On Friday, the euro weakened against the pound to 87p

“We are now seeing an increase in the number of clients buying in Europe as a result of the weakening euro,” says Miranda John of Savills Private Finance.

Borrowers can reduce the sterling cost of purchasing a property abroad by using a euro-denominated mortgage, brokers say.

Fiona Watts, managing director of International Private Finance (IPF), the mortgage broker, says that over the past 20 years, most UK-based buyers of overseas property have raised money against their UK property and used the sterling funds to purchase abroad.

But she says the current level of the exchange rate makes this an unattractive option. As a result, an increasing number of people are now looking at securing euro-denominated debt against a euro-valued property asset.

The benefit of taking out a euro mortgage on a French property is that the currency of the asset and the liability are matched, avoiding the impact of exchange-rate fluctuations.

In addition, if sterling strengthens as experts predict, the cost of the mortgage – both the monthly repayment and the balance outstanding – will fall.

Clare Nessling, operations director at Conti, the international mortgage broker, suggests that even cash-rich buyers should 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 paid.

For example, a homebuyer taking out a euro mortgage of €250,000 for a property in France based on the current exchange of around €1.1 per £1 would have to make a commitment of £227,000 to pay the mortgage off. If the exchange rate rises in favour of the pound to €1.3 over the next couple of years, they would only need to pay £192,000. Investors would have to factor in the impact of mortgage costs and notaire fees.