2. Sterling or Euro Mortgage?

1. 2.1. Currency Risk
2. 2.2. Tax Considerations
3. 2.3. Interest Rates

If you are seeking to purchase a second home in France with a mortgage facility then you will either need to release equity in your existing home, or seek a mortgage on the new property (or both!).

If you propose to remortgage you will need to reflect on whether or not you want to take the risk of having your principal home used as security against your French home.

2.1. Currency Risk

Whichever route you choose to travel, a primary consideration is going to be currency risk.

2.1.1. Remortgage

If you are able to remortgage then the whole process is certainly more straightforward, and you are offered a higher degree of protection against currency fluctuation.

If you live outside the Euro zone then your main currency risk with remortgaging is at the time you purchase the property, something you can insure against by organising a forward contract at a fixed rate.

If you think your currency is going to strengthen against the Euro then you would be better off getting a spot rate, and then transfer the funds in time for completion.

Once purchased then, with re-mortgaging, you have the same monthly payment, irrespective of changes in currency rates.

Only if and when you decide to sell the property does currency risk later become an issue. Of course, it could be a big issue if you do decide to sell, and the currency has gone against you.

Some of the bigger brokers around are:

• HiFX
• Exchange4free
• FC Exchange
• Halo Financial

2.1.2. Euro Mortgage

If you are unable to remortgage the full price of the property, you either have to fund the balance from cash resources, or secure a Euro mortgage on the new property.

One partial solution is, once again, to buy a forward contract, which you can do so for at least two years ahead, with renewal on a periodic basis.

Thus, not only could you secure the mortgage at a fixed rate, but you could continue to transfer funds across to France at the same fixed rate until the expiry of the forward contract.

One other solution is to borrow more than you actually need and maintain funds in a French bank savings account, which could later be used to make mortgage payments in the event of an adverse movement against your home currency.

Thus, even though you many only need to borrow 50% of the purchase price, instead you borrow up to, say, 80% of the value of the property. From your own savings, you then make a substantial deposit into your French bank account, and hold the money there for a rainy day, or make ongoing mortgage payments from the account.