Euro mortgage in Spain: pay off lump sum or what?

Leodisbod

I have a very high mortgage with a bank in Spain, in Euros, which I had to take out to buy a property over there in 2006. Obviously that was at the height of the selling frenzy and property selling is currently almost impossible, without significant loss. The value of the property is now two thirds of what I paid for it and I would lose more than I invested if it was sold now.

The advice to Sterling mortgage holders, with Sterling savings, is to pay off as much as possible.

Each month I pay a euro mortgage out of my Sterling savings via a well known broker, as opposed to a bank. I have been advised by an IFA that I cannot bring the mortgage back to the UK – and therefore in Sterling – and their solution (which I think is risky and therefore don’t intend to follow) is to pay off the mortgage in Spain by taking a mortgage out on my home in the UK to cover the repayment in Spain.

I can pay off 25% a year with no penalty at all. However, bearing in mind the current rate of exchange for the Sterling to the Euro and that it may be years before I can sell and not make a significant loss, is it still the right thing to do, to convert and pay off as much as possible? If not, what else can be suggested? Cheaper transfer of money? Other mortgage brokers over there?

Any advice would be gratefully accepted. Thank you!

silvercar

I have been advised by an IFA that I cannot bring the mortgage back to the UK – and therefore in Sterling – and their solution (which I think is risky and therefore don’t intend to follow) is to pay off the mortgage in Spain by taking a mortgage out on my home in the UK to cover the repayment in Spain.

What is the risk?

If your home in Spain got repossessed the lender would have the right to come after you for any shortfall (difference between what the home sold for and the mortgage). If you had a property in the UK, they could put a charge on your property here.

So you may think that your house here is safe, because your mortgage is in Spain, but in reality it doesn't make much difference where you secure the mortgage. It would be more hassle for a lender, but could still be done.

Whether now is the right time to switch to sterling, who knows. Only a matter of days ago an exchange rate under £1-1.2EUR was unlikely, now it has happened. Not got a clue where it is going next.

Leodisbod

Thank you Silvercar.

There isn't a risk in me defaulting, so a repossession scenario isn't going to happen - I'll make sure of that. Perhaps that comment of mine is misleading.

I don't know if paying off is the right thing to do - the adage of throwing good money after bad. Who knows if/when it will ever recover, for me to be able to say it's an "investment" and not a millstone, as it is at present.

There are enormous payments leaving my UK Sterling bank each month and I can't calculate whether the Sterling advice for Sterling mortgages is the right thing to do, for this situation.