Re-mortgage UK property or Euros Mortgage?

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This topic contains 11 replies, has 9 voices, and was last updated by Profile photo of Anonymous Anonymous 6 years, 2 months ago.

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  • #55182
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    Anonymous
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    Does anyone have any strong feelings on which route might be the best at the moment? we own our UK home outright and would be looking for a mortgage of approx 61% of the value of it for the new apartment in Spain.

    Reason for the question is fear about exchange rate – although I do realise UK interest rates over time could be an issue…

    Thanks in anticipation

  • #94154
    Profile photo of Anonymous
    Anonymous
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    Interest rates everywhere are likely to rise very substantially over the next 5 years. By exactly how much is anyone’s guess. I personally would not feel very happy about taking on a mortgage right now for a second home. It is a gamble, and as with all gambling, if you cannot afford to lose it – don’t do it. Property prices do appear to have stabilised in the UK, but that may not last. In Spain they show some signs – maybe – of having bottomed out in certain sectors, though apartment type houses are in such over-supply that I’d hesitate to even think about “investing” in that market.

    Same with exchange rates: highly volatile and if you could predict that with any accuracy unlimited wealth beckons… of course, if you get it wrong, you could end up losing big time.

    Andy

  • #94155
    Profile photo of Inez
    Inez
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    Lonegroover, if you are going to release funds from your UK home then why not tie into an fx dealer as they will set a rate for you so you wont have that uncertainly.

    I would speak to one of them for clarification as I am not sure how long they hold it for but I do know they will split the amount, so if you need some for a deposit and then some for completion this is covered and you know exactly what you need to pay.

    If you havent found a property yet, then this will help you to decide the price you want to offer as well.

    I may be wrong but I think they can forward buy and hold it for a 12 month period, but speak to a few of them to find out

    This is what 2 of my buyers have done as they are going through the process now.

    Good luck!!

  • #94159
    Profile photo of jacques
    jacques
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    The best way to hedge your exchange risk is to match the currency of your new asset with the currency of the liabilty created to finance the purchase.That is to say,obtain a mortgage in euros against the security of your Euro asset and do not create an asset/liability currency mismatch by borrowing so much against your UK property.

    If Sterling strengthens against the Euro then your foreign asset is worth less but this is mostly compensated by the reduction in the Sterling value of the mortgage.You further benefit from a reduction in the Sterling servicing costs.

    Obviously the converse is true but any profit made with Sterling weakness will be off-set by an increase in the sterling value of the mortgage and the cost of servicing.In summary your exchange exposure is limited to the net equity in the property (ie. Your cash deposit) and the exchange fluctuation on your annual motgage repayments.

    This takes away the the temptation to gamble on the macro-economic conditions in one currency zone being better or worse over time than that of the other (eg Euro interest rates versus Sterling rates; house prices in UK versus Spain: inflation differentials etc.).I assure you very few ever get this right and if they do it is more by accident than design!

    Good luck!

  • #94207
    Profile photo of Anonymous
    Anonymous
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    If Sterling strengthens against the Euro then your foreign asset is worth less but this is mostly compensated by the reduction in the Sterling value of the mortgage.You further benefit from a reduction in the Sterling servicing costs.

    I hadn’t considered this aspect. Very helpful J 😀

  • #94426
    Profile photo of Anonymous
    Anonymous
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    @jacques wrote:

    The best way to hedge your exchange risk is to match the currency of your new asset with the currency of the liabilty created to finance the purchase.That is to say,obtain a mortgage in euros against the security of your Euro asset and do not create an asset/liability currency mismatch by borrowing so much against your UK property.

    Jaques I really hope you are not a professional financial adviser!!

    Anyone taking such advise 2 years ago would be looking at a 30% increase in payments simply to service their Euro mortgage. The poster is clearly refering to servicing a mortgage from a UK dervided source (salary, pension).

    The currency of the mortgage (liability) should match the currency of how that liability will be serviced (salary, pension), to mimimise exposure to currency flucation which the poster is really referring to.

    It’s of little benefit to realise your asset is now worth 30% more in sterling, but your faced with mortgage payments 30% higher. You have to immediately match those higher payments but may never realise the benefit of sterling increase as when you sell (if you can) years down the line the benefit may have been reversed.

    And considering a Euro property financed through a 100% interest only Euro mortgage there is absolutely no benefit whatsoever in exchange rate movement against you. You have no capital in the property, you are simply exposing yourself to risk.

    However, for what it is worth with Sterling at a historical low due to the UK government engineering a deliberate devaluation, I would be looking for a Euro mortgage with the smallest of deposits, so essentially financed by the largest Euro mortgage I could obtain. I would then look to convert this to a sterling mortgage at a later date if the exchange rates improved. If the rates don’t improve then I would have lost nothing as I don’t believe Sterling can fall below it’s current limit.

  • #95451
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    Anonymous
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    Can a mortgage company file a 1099 when you are in default without a summary jugement? We are residents of Texas and the property in foreclosure is in Delaware. Second mortgage holder is threatening to file a 1099.
    _________________
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  • #100757
    Profile photo of Black_Pear
    Black_Pear
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    Jp1
    Thanks for your advice posted above but I am struggling to understand. Perhaps you can help.
    I am purchasing a property in Almeria and trying to work out my best way to finance it.

    I thought that getting a Euro mortgage would be my best way to hedge against currency fluctuations especially if I am counting on the Euro weakening. I.e. Getting a better exchange rate for the £.

    My thoughts are that in my case obtaining a spanish mortgage costing 2000 euro a month serviced from UK will cost £1650 now, bit if say, the exchange rate hardens to 1.30 then it will only cost me £1500. (also the mortgage loan value drops from £300000 to £270000.)
    If I take a sterling mortgage I get no benefit from currency fluctuations in my favour (but am protected from currency fluctuations against me).

    Is my logic correct or am I missing something?

  • #100765
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    Anonymous
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    Although nobody has a crystal ball, have you thought of a fixed rate Spanish mortgage? You are at least clear on Euribor increases and you can easily negotiate what the bank wants to put on top.
    Personally I don’t think anyone can guarantee long term exchange rates, perhaps the pound is weak at the moment and will be stronger in a while…but in 2-3 years?

  • #100767
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    Anonymous
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    I did what you are thinking of doing 5 years ago – I’m based in ireland so I was mortgage free here on house in Ireland and at the time I thought it made sense to do the mortgage from here as interest rates so low. I purchased apartment in Spain. At the moment the interest rates in spain are far lower than here in ireland – since July 2009 we have had 3 interest rates hikes on to our mortgage which as I said we took out in Ireland – I have looked at the idea of taking the mortage out on the spanish property – releasing equity in spain and paying that off my mortgage here in Ireland. It would cost about E6000 to do and also I will get only 60% of the valuation of the property in Spain. My advice whatever about the pounds and pennies would not to be take out a mortgage on your main residence – take it out on the spanish property – keep it separate.

  • #100781
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    Anonymous
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    BP,

    I think my post above says it all really. It’s your call on what sort of risk you want to take. I posted because the idea of hedgeing against currency flucations makes no sense when buying a property that you are going to own for possibly 20 years. (Or simply even just a buying a property that has HUGE purchase costs)

    You have used the term again but you aren’t doing any hedging. If you take a Euro mortgage, then your monthly payments will vary depending upon what happens in the wider global econmomy. They may go down, up or stay static. But whatever happens where is you hedge? If they increase substantially by the Pound going back to being worth 1 Euro, then techinacally you have a house in Spain that is now worth more in Sterling. But that is only at that moment in time and it’s completely an illiquid asset. You don’t want to sell it because it’s just cost you 20,000 Euros in taxes and fees, you have only had it 6 months and we are in the deepest housing crisis that Spain has seen in a generation. You get the idea. You sell 10 years later and the UK econmy is doing so well that the exchange rate is back up to 1.5 and get back less money (in sterling) than you bought it for!! ( But for 8 of those years you had a very expensive mortgage while the UK sorted out it’s economy!!)

    You are not hedging anything!

    You are simply trading certainty in costs over a gamble on whether your monthly costs will go down in the future.

    Buying today at an exchange rate of 1.2 is really in no mans land. At 1.0 it was unlikely that sterling would weaken further, so you had a better idea of where your gamble would go.

    So you can see my post is not much help! But your logic is correct.

    What I will say is that I think Spanish House prices still have a lot further to fall. At least 10~15%. If I was personally looking to buy, I would wait 12-18 months.

  • #100785
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    Anonymous
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    JP1, you are certainly right in everything you say.

    Nobody has a crystal ball and property will certainly come down around the figures you are saying, although I think we will see this drop earlier, around New Year.

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