Euro mortgages cost UK salaries dear

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by Gill Montia

Britons who have purchased second homes in European Union counties are feeling the pinch as the euro continues to rise against sterling.

The value of the euro is currently around the 80p mark, compared with 66p in January 2007, leaving those on UK salaries paid in sterling but with euro mortgages having to dig deep to keep up with repayments.

Some foreign exchange analysts are predicting that the credit crisis and a slowdown in the UK housing market will mean that sterling continues to fall, to the point where conversion of the currencies would not require a calculator, that is, £1 equal to €1.

While the number of Britons keen to own property abroad continues to rise, those interested in leading destinations, such as France and Spain, might now be hesitant.

Even if they are prepared to face the extra cost incurred by the drop in sterling, they will have to think carefully about the benefits of the attractive interest rates available on some euro mortgages and the risk of a further decline in the value of sterling.

Some currency brokers will allow customers to buy euros via a forward contract and thus fix their monthly mortgage payments for up to two years ahead.

This provides the security of knowing the exact amount of monthly payments during the period of the fix. However, it is a gamble because the transaction does not allow customers to benefit from a rise in sterling.