Purchasing property abroad and borrowing money

bms_boxer_twin

I've noticed in some recent posting that there are some foreign property owners. I'd like to draw on their experience in purchasing property abroad.

I am also interested in doing this and at present still in the very early stages.

I am wondering if you can help me. Where can I find what the current interest rates are in the "Euro" zone? Are the rates set by the European bank accross europe in the same way that the Bank of England sets the base rate here in the UK?

I am trying to establish whether it will be cheaper in terms of interest to take a "Euro" mortgage (with a foreign bank) on the property abroad or remortgage our home in the Uk and pay the english lending rates.

Country I have in mind is Austria
Finance in mind would be around Euro 100K-140K

What other pitfalls do I need to be aware of .....langauage won't be a problem as I'm fluent in zee german !

Cook_County

Unless you know whether or not the interest is deductible in Austria it will not be possible to answer this question properly!

devils_advocate

From the financial perspective, you have to look at the 'risk'.

Firstly, and most importantly, exchange rate risk. This is defined as where the exchange rates can move with you or against you. If you were to purchase a place for cash, you're exchanging your GBP asset (cash) for a EUR asset (property). If GBP goes down against EUR by 20%, and house prices rise by 10% in your chosen location, you've lost out. You can protect aginst this exchange risk by borrowing in EUR, so if you only use 30% of the purchase price in cash, your EUR asset is partially hedged by the EUR liability (the morgage).

Then it gets more complicated. If you are paying off an EUR mortgage by spending your GBP income, you have monthly exchange risk on the sums required to pay off the mortgage. At best, if the exchange rate goes in your favour, you will find yourself paying less each month on the mortgage, but in GBP terms the EUR property value is going down. At worst, you are paying more each month over the 25 years or so, and then in the final years of the mortgage the exchange rate goes the other way. You've paid more and more for something that suddenly has become worth less.

The next risk is interest rate risk. Historically, EUR rates (and the legacy currency predecessors) have been lower than GBP. IN the longer term, because interest rates and exchange rates are closely related, any gain on interst rate saving has been wiped out by currency devaluation. However, this assumes perfect timing, and if you want or have to do something in a specific timeframe rather than wait, sod's law dictates that its the wrong time to do it.

Hope this helps show the pitfalls.

Ian_W

Gutenabend bms_boxer_zwilling,

For Euro mortgages have a look at:
http://www.mortgagesoverseas.com/

It's not a recommendation but they have been around a long time though I thought their charges were rather steep when I was looking a few years ago. They don't list Austria or Germany so neither appear to be overly popular with ex-pat Brits. There's another specialist broker here, no experience of them:
http://www.mortgagesabroad.co.uk/

AFAIK the european central bank rate for "marginal lending" is 3.5% so, I guess like here, the banks in Austria are going to be a little above that for a mortgage.

The advice we had was to try and have repayments in the currency you are earning in - so if that's sterling you would probably be better remort'ing your property here if you have the equity available. If you haven't then try to find a UK lender who will lend in Austria, loads more will now in Spain [LTSB, HSBC, Abbey, Barclays etc, etc] than was the case even a few years ago. If you anticipate rental income overseas will be used to repay [as opposed to rentals in UK] or you're relocating there then local banks will probably be the best bet. Whilst €uro mortgages on the face of it are cheaper, you have currency charges and risks to consider if repaying from UK income.

The legal, culteral and financial systems of southern Europe are likely to be considerably different from Austria so there is no "read across" advice I would venture in that respect, Without knowing how you intend to use the property it's also difficult to pinpoint pitfaults.

HTH & BoL.