Euro or sterling Mortgage

Munchkins

We have already started construction of a chalet in France but are going to need some finance so are looking to take out a mortgage over 15 years but hope to pay this off within about 5 years. Because of the rapid fall in sterling to the euro would you agree that we would be better to take out the mortgage in France? I understand the repayments may fluctuate but we are ok with that.

benood

Interesting quandry -I'm not certain but I assume that you are asking whether to borrow in euros or £s. Taking a sterling loan will mean you don't have exchange risk between your income (if it's in £) and the repayments, you do have interest rate risk.

I don't think anyone really knows if the pound will fall further against the euro before recovering, if it recovers.

I'd hedge my bets - 50% £ and 50%Euro! You may get a better rate if you remortgage your house in the UK rather than mortgage the chalet.

p.s. apologies if I have guessed your situation completely wrong.

beingjdc

The rapid fall in sterling up to now means nothing in terms of your decision. It's what it's going to do in the future that makes the difference. Got your crystal ball?

I agree with the above also, you want a mixture of a mortgage in the same currency as the asset, and a mortgage in the same currency as your income.

Generali

Munchkins wrote: »

We have already started construction of a chalet in France but are going to need some finance so are looking to take out a mortgage over 15 years but hope to pay this off within about 5 years. Because of the rapid fall in sterling to the euro would you agree that we would be better to take out the mortgage in France? I understand the repayments may fluctuate but we are ok with that.

If you earn in Sterling, get the mortgage in Sterling. If you earn in Euro, get the mortgage in Euro. If you plan to rent out the chalet and reckon you'll make enough to cover the mortgage then get the mortgage in the currency you plan to rent it out in.

You will not be able to predict interest rate changes so it's about reducing your risk. Do not try to finesse the FX market as you will get your fingers burnt.

Munchkins

Munchkins wrote: »

We have already started construction of a chalet in France but are going to need some finance so are looking to take out a mortgage over 15 years but hope to pay this off within about 5 years. Because of the rapid fall in sterling to the euro would you agree that we would be better to take out the mortgage in France? I understand the repayments may fluctuate but we are ok with that.

Thanks for your replies. After pondering for some time over this I think we have come to the conclusion that it would be best to go 50/50. All of our income is in sterling but how much worse can the situation get?

Generali

Munchkins wrote: »

Thanks for your replies. After pondering for some time over this I think we have come to the conclusion that it would be best to go 50/50. All of our income is in sterling but how much worse can the situation get?

Lots or hardly at all.

The answer will be obvious in a few years but surprisingly hard to decipher now.

Munchkins

So you don't hold out much hope of the situation improving then?

Generali

Munchkins wrote: »

So you don't hold out much hope of the situation improving then?

Me? No. Not in the UK. Things look pretty bleak to me. Time will tell of course.

WTF?_2

But of course things could get worse in the Eurozone. (and IMO will)

From here on in, it's a race to the bottom amongst the old economic premiership. Which will fall the most is the question, not which will fall.

JonnyBravo

!!!!!!? wrote: »

But of course things could get worse in the Eurozone. (and IMO will)

From here on in, it's a race to the bottom amongst the old economic premiership. Which will fall the most is the question, not which will fall.

eh?

The OP is in effect asking which is going to fall between sterling and the euro.
They can't both fall against each other.

WTF?_2

JonnyBravo wrote: »

eh?

The OP is in effect asking which is going to fall between sterling and the euro.
They can't both fall against each other.

But they can both fall. The only question is which comes off best/worst, which is a total crapshoot.

Best to just take a mortgage in the currency you will be earning to pay it off with and avoid the risk of FX as Generali said.