August 28, 2009 at 3:57 pm #55173
New to the forum and wondering whether anyone could clarify something for me.
We’re negotiating buying a property which will be part funded using a Santander mortgage in Euros.
With the exchange rate being worse than when we first saw the property, we’re now thinking about using less of our capital as a deposit thereby taking out a larger mortgage than we originally intended.
The logic being that we could overpay on our mortgage using our capital if/when the exchange rate improves and get more euros for our money. Obviously the risk is that sterling weakens even further but aside from that does this approach make any sense to anyone else or am I missing other factors?
Thanks in anticiapation
August 28, 2009 at 6:27 pm #94009Fuengi (Andrew)Participant
the actual interest rate. The euribor is low at the moment, but at some point it will increase, whereas the pound could stay weak even weaken (unlikely but!)
August 29, 2009 at 10:42 am #94014
As the position stands, there is nothing fundamentally wrong in your strategy. Of course the future of anything in life nobody knows. Besides it also depends on other factors like your age etc.
Which ever way you finance your purchase do not ignore that the mortgage will have to be serviced in €. If I was you, I would ask for a interest only mortgage for as long as possible. This will help you in keeping monthly payment low & allow time to take advantage of the currency movement. If Santander does not offer interest only mortgage. I should try Halifax Hispana.
You should try and do, is to renegotiate the purchase reflecting a drop in the exchange rate.
In so far as the future interest rates are concerned. The rates will go up at some stage all over the developed world. UK at present is lagging behind in terms of data, that allows market to evaluate the currency. We are still in negative territory and seams will be there for a few years or so as we are too much aligned with the US economy.
August 31, 2009 at 7:14 am #94015
Just to echo Shakeel´s words.
Interest rates are historically low at present. Once the crisis eases they are likely to go up quite steeply to counter any inflationary pressures. I´m currently buying a property here in NL. For that purchase I have opted for a ten year fixed rate. It is a bit more to pay now but my guess is that it will be worth it in the longer term.
As for currency fluctuations, who knows. You could find yourself hit with a double whammy. A sinking pound and increasing interest rates. Just make sure you factor the risk into your calculations.
August 31, 2009 at 8:01 am #94016
I was planning a variable mortgage so I could overpay (i have a variable income) but your comments a re making me wonder about the wisdom of this…
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